Small and Medium-sized Enterprises: Government Policy
Lord Sugar
To call attention to the effect of the Government’s policies, such as proposals for capital gains tax, on entrepreneurship and on small and medium-sized enterprises; and to move for Papers.
Lord Sugar
My Lords, with the proposed first Budget of the coalition Government scheduled to be announced on 22 June, I feel it appropriate that in today's debate matters of change which may affect SMEs should be aired. Before I express my comments, I state that, pursuant to the Code of Conduct, I have registered with the Table Office any relevant interests that may arise from those listed in my name in the House register of interests.
After the formation of the new Government, I was surprised to hear rumours suggesting an increase in the rate of capital gains tax. I thought that such a suggestion would be totally alien to Tory policy. Your Lordships may agree when I say that there have been some rumblings of discontent in their ranks on this matter, but I quickly recognised that it was the brainchild of the new Business Secretary—no doubt part of the prenuptial agreement.
I then noticed some backpedalling on the proposal. The Prime Minister, closely followed by the Chancellor, said words to the effect of, “Don’t panic. Just wait and see”. This gave me hope that our debate today may still be in time to influence what I detect is a plan still being drafted, but I am a bit confused, because the Business Secretary said that the current policy on capital gains tax can lead to large-scale tax avoidance. That was endorsed yesterday by the Prime Minister, while discussing capital gains tax on the Jeremy Vine programme on Radio 2. In that discussion, he said that he did not come into politics to put punitive rates of taxation on savers and people who do the right thing. He concluded: “I think you’ll see that it’s a fair and reasonable outcome”.
I have researched possible schemes of avoidance. Excuse me if I am missing the point when I say that I have come across only one anomaly. It benefits individuals who manage private equity funds who somehow magically turn their commissions made by creating gains for their clients from normal income into a capital gain. I agree that that, like any other tax-dodging scheme, is wrong, but it would be simple to eliminate in isolation in the forthcoming Budget. While we are at it, can we take a look at other stupid anomalies, such as with spread betting, where it seems that trading in shares in one's own name is likened to placing a bet on the favourite in the three o'clock at Newmarket. Just like a win on the horses, those gains are tax free.
Having said all that, I do not agree that an increase across the board on capital gains tax under the guise of stopping those kind of things is fair to genuine traders and businesspeople. It will have a devastating effect on enterprising people who decide to take the leap and set up their own businesses with a view of either floating them or selling them by way of a trade sale. I know that there is currently a £2 million entrepreneur relief in place, but in this day and age that amount falls short of the aspirations of real growth companies, especially those in the technology sector. That big payout is the ultimate goal for such entrepreneurs and their loyal employees. Raising capital gains tax rates will not encourage employees of public or private companies who have been incentivised with approved share option schemes. It will depress their desire to work hard. Most devastated will be those business or asset owners who have worked honestly and hard all their lives and are reaching an age where they are considering a sale.
By all means curtail people who trade in and think up avoidance ideas, but leave the genuine people alone and allow them to prosper and generate employment by good old-fashioned trading, manufacturing and sheer hard work—or, as the Prime Minister put it yesterday, “those that do the right thing”. A taper relief system should exist, resulting in low rates, such as the 18 per cent we enjoy today. There should be a much clearer differentiation between business and non-business assets, to allow people to know exactly where they stand. It is wrong to suppress enterprise in any way. Those people who, outside of their normal work, invest in real estate in their own name to enhance or refurbish it with a view of making gains should not be punished if they have retained the asset for a fair period. The same could be said for those who are long-term shareholders. One needs clearly to differentiate between the fast-buck merchants and those who invest sensibly.
Your Lordships may be interested to note that from the tax year 1997-98 right up to 2007, when the rate was 40 per cent, with taper relief providing possible rates of 10 per cent for business and 24 per cent for non-business, an average revenue of £3 billion per year was collected. In 2007-08, when taper relief was abolished and the advantage of the 10 per cent rate was changed to a flat 18 per cent rate, there was a rush in the sale of assets resulting in a massive increase of receipts to £7.6 billion. From what I hear, it is estimated in that 2008-09, under the 18 per cent arrangement, receipts dropped back to £3 billion. I would hate to think that a significant increase in capital gains tax, albeit delayed until next April, would induce a fire sale of assets that would depress certain market sectors. Is it the Government’s real agenda to generate a massive windfall of revenue in order to boast in a year or so’s time about how well they are doing in reducing the current deficit? The Prime Minister said yesterday that revenues from additional capital gains tax will be used to supplement lifting the income tax threshold for basic-rate taxpayers. I am sceptical that the maths will work out that way. Instead, any windfall would be shallow and short-term thinking, simply playing with numbers and window dressing, ignoring the devastating long-term effect on enterprise and employment.
There is also mention that the Government intend to cut investment allowances with a view to funding a corporation tax cut. This idea will benefit only non-productive companies such as those in financial services, which make large profits with very little investment. Investment allowances have encouraged manufacturers to invest in leading-edge plant and equipment. They also release more working capital to them. These companies create employment, train the young and win valuable export sales. This is not the time to demoralise them or to create cash-flow problems for them. It will make them think twice before investing and, more to the point, investing in the UK.
Your Lordships will recall that last year I was engaged by the then Government to act as an adviser in areas relating to SMEs including, among other things, their relationships with banks. During that time, I attained quite a high level of understanding of the service provided by Business Link centres. I shall not speak of all the good things available to SMEs through these centres, save to say that it is a very good service. It makes a difference in helping and encouraging start-ups as well as hand-holding those already in business. I have heard that the Government are proposing major cuts, including cutting quangos or cutting costs at the RDAs, which worry me in respect of the future of Business Link centres. At the tail-end of my advisory role, I reviewed the cost of operating Business Link centres. I will be honest: despite being encouraged by what I saw out in the field, it quickly became clear to me that a lot of cost could, and should, be saved in running this service. I would wholeheartedly endorse a rationalisation of Business Link centres. It would generate significant cost savings if we made sensible changes by cutting duplication and centralising some of the services they provide. I am convinced that that can be achieved without any decay at all to the service they provide. My plea to the Government today is to say that, considering all the hard work in crafting this excellent service, it should not be abandoned or merged in some smoke-and-mirrors arrangement. I ask that it remains in place under its current branding and autonomy, albeit rationalised in cost terms so that it can continue to offer the great support it gives to the small business community.
In the March Budget this year, it was promised that government procurement departments will pay SMEs on time and allocate a larger percentage of their spending to small companies. I hope this promise is honoured by the Government, as it was one of the issues most voiced to me when I was engaged on the coal face with the SME community. Problems still exist getting on an approved government buying list. It is very complicated. It seems each and every department or council has its own criteria. I encourage the development of a simplified “one covers all” approval system to allow SMEs a fair crack of the whip, at least to be able to bid for the business.
My final topic is the old chestnut of the banks allegedly not lending to small businesses. Correct me if I am wrong, but do I detect in the past few weeks a complete silence on this, once branded a disaster area? From what I recall, it was frequently debated in this House and reported in the media. Why has it all quietened down? Is it that a problem did not really exist? Is it that those who complained now realise they did not deserve what they were demanding? Is it that for some people there has been a massive wake-up call that there are no free lunches out there?
The banks experienced a shock a couple of years ago from the world’s economic crisis. They were chastised for their irresponsible actions in getting into such trouble. Then, after the bailout, they were chastised again as to why they do not lend irresponsibly to every Tom, Dick and Harry.
Your Lordships will recall how this House, and those in the other place, raised concerns based on misreporting in the media of comments I supposedly made last year when trying to be realistic and honest on this subject. The then Government were so intimidated by this banking issue that in the last Budget they announced that the Financial Intermediary Service would set up a national credit adjudicator. So concerned were some that it prompted the noble Lord, Lord Razzall, then residing on the opposition Liberal Democrat Benches, to inquire,
“bearing in mind the well known views of the noble Lord, Lord Sugar … that there is no difficulty … obtaining finance from banks … that the noble Lord, Lord Sugar, will not become the adjudicator he referred to?”.—[Official Report, 25/03/10; col. 1067.]
I am delighted that the noble Lord, Lord Razzall, has decided to join in this debate and I look forward to his contribution, but let me allay any fears. There was never any intention of me being an adjudicator, but I did chair a committee tasked to find one. Interestingly enough, when the subject was discussed in detail to try to home in on what, if any, problem existed, it exposed many facets which needed consideration, including the possibility of concluding there was very little on which to adjudicate.
If I have one criticism of banks it is that they should be held responsible for giving detailed explanations to people as to why they have been turned down for finance. I am sure this constructive information will help companies understand what they need to do to with their businesses in future to secure finance. I am encouraged, as we start to see some recovery of the economy, by some banks divesting away from broking or other trading activities and refocusing, as traditional banks, on what they used to do best—lending money to businesses.
I conclude by saying how amused I was to hear that the Business Secretary—who last year, in response to my comments on banks, stated that I was “out of touch” in the business world—seems, having been in office for no more than 15 days, to have taken a leaf out of my book. Some may argue he infringed my copyright in his less than encouraging statement to the small business community when he said:
“I don't want to raise unrealistic expectations. I'm not going to go around the country with a chequebook signing cheques for every company that has a bright idea”.
If he carries on like that, who knows? He might get his own TV show.
Lord Haskel
My Lords, I congratulate my noble friend on his excellent speech in moving this Motion. For my part, I want to start first with a conundrum for the Minister. What do the following have in common: clothing with sensors that monitor and transmit data about people with long-term health conditions, so that they spend more time at home and less in hospital; an oral fluid that enables the police to detect the increasing number of drivers who are under the influence of drugs—previously they had to do this by observation; and a technology that will make our mobile phones more secure as they become a source of replacing cash in our wallets? The answer is that all three are Small Business Research Initiative programmes.
How does it work? A government department identifies a need for a product or service. Through the Technology Strategy Board, this is framed in the form of a competition. Small businesses enter and the winners gain a contract to develop and supply the product or service. Since 2009, more than 400 contracts have been awarded to mainly small businesses by 13 government organisations. As my noble friend Lord Sugar indicated, everybody benefits. Government departments procure new technologies faster and with managed risk. Small companies get paid contracts at the critical stage of product development. Some of the financing gap left by the banks gets filled.
This illustrates the reality of the relationship between government and small businesses, but there is also a lot of myth about this relationship. Sadly, the coalition agreement is strong on the myth and weak on the reality, so let me try to separate them out. Before I do, let me remind noble Lords why there should be a relationship between the Government and small businesses. As many fund managers will tell you, the reason is that many of our large companies have their best years behind them. They have experienced most of their growth and innovation and, unless they change, somebody else—leaner, fitter, more hungry, more innovative—will take their place and outperform them. The Government must encourage this to happen here instead of elsewhere.
It is a pity that we are not hearing from more noble Lords opposite—but that is the problem of having this debate during Ascot week. If they were here, they would say that the way in which to encourage small companies is to cut red tape and to have low rates of tax. This is where we have to separate the myth from the reality.
Let me start with the red tape. When the noble Lord, Lord Heseltine, became Secretary of State for Business, he promised us a bonfire of red tape. It did not happen because of lack of fuel. When Margaret Beckett became Secretary of State—I had the honour of serving in her team—we, too, tried to cut red tape. We started a website where people could tell us where the problems lay—anonymously, if necessary. As a result, we simplified the auditing and the VAT regulations for small companies, but the effect was not great. We asked a lot of businesspeople to be specific, but they said that the problem was a lot of small things hard to specify. I am convinced that a myth has grown up around the whole question of red tape and I urge the Minister not to let the myth distract her from the reality.
What is the reality? It is that the myth has held back all Governments from dealing with market failure and lack of competition by regulation. Look no further than the banks. Instead of regulating from the perspective of the customer—of the wider community—the regulation was captured by the industry. Let me give another example. I notice that once again the FSA is—or was—investigating the closed shop that controls initial public offerings in London, an important source of development finance for small companies. This unregulated market failure has been going on for years. The high charges certainly deterred me 30 years ago and it must have been the same for hundreds—perhaps thousands—of others. It is an example not of too much red tape but of too little.
The other area where myth and reality become confused is taxation on small companies. My noble friend Lord Sugar spoke of this. We are told that, if the Government raise capital gains tax, diminishing returns will set in and entrepreneurs will leave the country. The myth surrounding this relates to the so-called Laffer curve—tax rates on one axis and government income on the other. I am sure that the curve exists, but the trouble is that no one knows where it peaks. Economists cannot tell us because of the many external factors, as mentioned by my noble friend Lord Sugar. Actual tax rates have been as low as 18 per cent and as high as 90 per cent. The answer of course lies somewhere in between, but your guess is as good as mine. So do not let this myth distract you from the reality.
The reality is that small companies need help in their early stages when they are struggling to establish themselves. That is why at present they benefit from lower business rates, lower tax on profits and increased investment allowances. I ask the Government whether this will continue. In reality, tax breaks are needed earlier rather than later when a business has been successful and the investors are collecting their profits. Higher tax may encourage them to leave the money in the business long term, which is an objective in the coalition agreement. I agree with my noble friend Lord Sugar that there should be arrangements for those who invest long term.
What other realistic ways are there for the Government to encourage small companies? Europe provides opportunities. I find Mario Monti’s paper on the completion of the single market very convincing. The single market may provide more competition, but it will also provide more opportunities for our small companies—the kind of opportunities from which our economy will benefit. The Government are keen on a green economy. Raising the target to cut carbon emissions from 20 per cent to 30 per cent by 2020 will help small companies. It will encourage them to engineer new green technologies. We already have a Technology Strategy Board which can champion this.
Let me end with another conundrum for the Minister. What do the following have in common: an ozone laundry system, which is becoming the European standard to prevent MRSA and Clostridium difficile; a new carbon composite produced at lower cost and with a lower carbon footprint, which is currently being used on the brakes of a winning F1 car and being tested on aircraft and trains; and a shock-absorbing polymer, which is used not only by the MoD but in the shoes of ballet dancers all over the world to protect their toes? The answer is that all these are new technologies developed in Britain, which, through the Materials Knowledge Transfer Network, have been transferred to small companies, thus helping them to grow.
I think that my conundrums have demonstrated that under a Labour Government small companies flourished. Will this support continue? If so, I hope that the Government will stop pronouncing Britain bankrupt and start showing confidence and pride in the small firms that are our future.
Lord Taylor of Warwick
My Lords, I, too, thank the noble Lord, Lord Sugar, for securing this debate. The writer Robert Frost said:
“By working faithfully 8 hours a day, you may eventually get to be boss and work 12 hours a day”.
We all know that running your own business is hard work, especially if, like the noble Lord, Lord Sugar, you started it from nothing. In business, you do not need a wishbone, you need a backbone. I am afraid Ronald Reagan was right when he claimed that the most terrifying words in the English language are:
“I’m from the Government and I’m here to help”.
Over the last 13 years, business has become complicated, bureaucratic and full of red tape. The Minister now has an opportunity to kiss and make up with the business community—and by kiss, I mean “keep it simple”.
We know that the Government are not a cashpoint machine. The former Labour Government’s Chief Secretary to the Treasury left a note stating, “I’m afraid to tell you there’s no money left”. So we know that the economic recovery will not come from the public sector; it can come only from wealth created by the private sector—from business. The fact is that over 90 per cent of all business in the UK is small business, employing fewer than 50 people. The entrepreneur has long been recognised as an important driver of economic growth.
Enterprise UK is an independent business-led charity founded by the British Chambers of Commerce, the Confederation of British Industry, the Institute of Directors and the Federation of Small Businesses. This week the charity produced a report based on a number of ideas that had come from 100 companies in the UK, ranging from multinationals to small business owners. It makes the point that small business tends to be more innovative than large business. But in terms of ease of starting a new business, the UK ranks only 16th in the world. There are barriers. The main obstacles are red tape, bureaucracy and lack of access to finance. The UK will continue to face significant challenges over the next decade from increased global competition. As we know, financial power in the world is gradually moving east, and the UK must respond by building a new economy based on business solutions.
The report also points out that enterprise is more popular than ever. Over half of the UK adult population says that it would prefer to be self-employed, but positive attitudes are not enough. From education campaigns to TV programmes like “Dragons’ Den” and “The Apprentice”, in which the noble Lord, Lord Sugar, makes such an impressive appearance, people’s minds can be opened up to the opportunities of running their own business. But too many are put off from turning their business ideas into reality because they cannot find the right advice and support. In my opinion, mentoring has an important role to play in helping businesses start up; and libraries, universities, colleges, job and community centres should all play their part in linking potential entrepreneurs with locally based mentors.
I turn to another report, one produced by the Department for Business, Innovation and Skills in November last year about black, Asian and minority ethnic-led business. It made the point that that sector is vital to the UK economy. There are an estimated 310,000 ethnic minority SMEs in the UK, contributing around £20 billion to the economy each year. They make up about 7 per cent of all SMEs in the UK. There are higher aspirations within these groups to start up their own companies than within their white British counterparts, but the conversion to start-up remains low, again because of the ongoing problems of lack of access to finance, business networks and mentors.
Levi Roots is a reggae-singing businessman. I see from his smile that the noble Lord, Lord Sugar, is aware of him. Levi developed his own sauce, called Reggae Reggae Sauce. I declare no personal interest in the sauce other than the fact that a bottle is in my fridge at home, and it does taste good. But Levi realised that that was not enough to make it sell. After years of failure and disappointment in life generally, he adopted the bold approach of going on to the “Dragons’ Den” TV show—he probably could not get on to “The Apprentice” because it is too popular—with his guitar and a bottle of his sauce. He presented his business plan to a stunned panel in a rather unusual way by singing his plan and the merits of the sauce. Well, it worked, because he was signed up by one of the dragons. That sauce is now sold in major retail stores all over the country. However, not every aspiring businessman can play the guitar or sing, so we have to make it easier for people who cannot sing and cannot play the guitar—I am not convinced that Levi Roots can sing and play the guitar—to succeed
The taxpayer bailed out the banks but is not getting the right service in return. The banks may be led by the new big society bank about which we have heard, but they must start to provide the small business community with the finance it needs to survive and grow. I agree with the noble Lord, Lord Sugar, that if applications for finance are turned down, businesses should be given the reasons for that refusal; often they are left completely in the dark.
Corporation tax should be reduced, both the main rate and the small companies’ rate. The Government should also exempt all new businesses from employers’ national insurance payments on the first 10 employees they hire in the first year. They should also reduce the burden of red tape. No new regulation should be introduced unless the burden can be reduced elsewhere—one in, one out. The number of forms needed to register a new business must be reduced. Again I agree with the noble Lord, Lord Sugar, on that point. There should be an end to restrictions on people starting a business in social housing. This would enable social tenants to become entrepreneurs.
There is a desperate need to simplify business taxes in order to give small businesses more certainty and stability. The Government must maintain generous tax exemptions to encourage enterprise. The income tax threshold needs to be increased, helping to lift millions of people out of income tax altogether and improving incentives to work.
The noble Lord, Lord Sugar, mentioned the thorny issue of capital gains tax. There are genuine concerns about the difference between the rate of capital gains tax at 18 per cent and income tax of up to 50 per cent as this could provide scope for tax avoidance by changing income into capital gains. At least the existing annual threshold of £10,000 must be kept, with any gains below this level being tax free. The Government’s aim must be to encourage savings and responsibility, not to penalise them. Capital gains tax could be tapered so that anyone selling assets would pay the tax at an increasingly lower rate the longer the assets were held.
Government procurement needs to be extended to small and medium-sized businesses. Again I agree with the noble Lord, Lord Sugar, on that. There should be an aim that at least 25 per cent of government contracts go to SMEs. The KISS principle should certainly apply—keep it simple.
The Government need to make Britain Europe’s leading high-tech exporter of manufactured goods by implementing Sir James Dyson’s recommendations to boost science and engineering. Apprenticeships tend to be associated with manufacturing and engineering, but we must not forget that they apply equally to the creative industries—media, music and the arts generally—which make up 8 per cent of UK GDP. Training for skills needs to be encouraged within that sector by further investment.
Finally, I encourage the Government to develop their Work for Yourself programme to enable people to move into self-employment. They need to continue to partner groups such as the Prince’s Trust and the Bright Ideas Trust and to offer support to the small business community.
Enterprise not the state will restore our economy, and I urge the Government to allow enterprise to lead the way so that Britain can be open for business again.
Lord Harrison
My Lords, many of your Lordships have run successfully big businesses. That is why I am encouraged to welcome my noble friend Lord Sugar, with his experience of small businesses, and the two succeeding speakers who also have knowledge of small businesses and the field of being hired and fired. If there is one thing that I could bequeath the business community in the United Kingdom, it would be the American approach, where to fail is not to fail. If you fail in one small business and fail in the next, you win in the one succeeding. If we could inculcate that view, we would go a long way towards establishing an even more successful small business community.
Labour’s record has been good; the noble Lord, Lord Haskel, detailed it well. Chancellor Brown had 10 years of stability, which is so essential for small business to grow. At the time of the global financial problems and instability, he it was who encouraged the G20 in 2008 to co-ordinate the stimulus which I think has worked and been successful. Indeed, there is evidence that it is working, albeit that the recovery may be fragile. That is why I say that the Government must be careful not to introduce precipitate, insensitive cuts which would cut off the recovery and, in turn, result in a double-dip recession. They should not resort to fondue economics, forever dipping in and out of recession. What businesses require above all is stability, because it gives SMEs the opportunities to plan, to invest and to expand. For 10 years, we had that stability, and we must recover it.
Labour’s record is good. There were 4.8 million private sector enterprises in the year for which they were last counted. That was 2.2 per cent higher than the year before and the highest number of small businesses since 1994. It is interesting that the stimulus in the last two years of the outgoing Government has resulted, perhaps unexpectedly, in fewer people being unemployed. There were threats of 3.5 million people being unemployed; the figure stands at just under 2.5 million. I think that that shows that the one thing that small businesses wanted to cling on to was people, relevant staff, who would lead them forward once the recession had been left behind. The Sunday Times reports that small businesses in Scotland were prepared to ban the use of first-class stamps or to phone around suppliers to cut by 10 per cent electricity, phone and internet costs, but they were determined to retain key workers, because small businesses rely on people, whether they are entrepreneurs or those who work with them. I ask the Minister to say what HMG can do to encourage the retention and expansion of the skills of small business people.
I want to be positive today. We have a new, alliance Government. This offers new opportunities, not least because the two parts of the alliance have had to bring together their ideas to form the coalition agreement, which contains a good section on small businesses. It is also good for our party after 13 years to have a period of reflection and renewal. We can be proud of what we have done, but we, too, need new ideas. We are therefore in a state of flux where new ideas can flourish. Where should they not flourish if not in small businesses?
I have analysed the coalition programme to see which parts are attributable to which of the two parties. It is a bit like dissecting the Beatles’ songs to see whether it was Lennon or McCartney who was the major contributor. The plangent bits are more Tory; the softer bits are more Lib Dem. That is illustrated in the vexed question of small business taxation, IR35, which has plangent elements and softer bits. I would be interested to hear the Minister dilate on the coalition programme and the elements of it which refer to small businesses.
I offer the noble Baroness, Lady Wilcox, my welcome. I know that she will be a feisty campaigner for small businesses and am very pleased that she is coming to address the Genesis Initiative, outlined in Britain’s Economic Revival. I shall raise some of the ideas expressed there. One initiative is that there should be a small business person within the Cabinet. Would she reflect on that? The legislation that applies to small businesses covers the whole field of government policy, and we need someone at the centre to see and understand that. Also, the noble Lord, Lord Taylor, has just mentioned that public sector contracts should be made more available to small businesses. That is a good idea, but how do the Government plan to achieve that in not too mechanistic a way—say, 25 per cent?
I have given the noble Baroness notice that I wanted to raise the question of succession planning. Too many small businesses fall by the wayside for the lack of having someone to take up the cause of the business when the proprietor retires. Certainly, when I was in Brussels speaking about small businesses, I remember the Commission producing a very important document highlighting that. Does the Minister have any figures on that? If I may be bold enough to suggest this to my noble friend Lord Sugar, it would be a very interesting area to explore, because we lose businesses that are absolutely viable for the want of someone who is in the know, who can take up such businesses and carry them to new heights.
I should also like the Minister to examine the world of audits, which my noble friend Lord Haskel mentioned, with regard to his period of looking after small businesses. Much was done by Labour to improve the situation, but a recent article by Anthony Hilton in the Evening Standard says that most audits are useless. I would not say that, but most audits coming from the big four on big business are questionable in the sense that they are so guarded and hedged that they do not provide proper information. However, a good audit for a small business is crucial for a better understanding by the entrepreneur of the business and its prospects. What ideas do the Government have for improving what I would hope could be meaningful audits that actually help the business to grow?
I want to mention red tape. The noble Lord, Lord Taylor, mentioned the “one in, one out” approach to red tape, but that can be naive and time-consuming, as well as too mechanical. We do indeed want to reduce red tape to ensure that it becomes the framework in which the invisible hand of the market can operate. However, you need a Government to frame and police the market. We have too little policing of the markets that are established, and we need to be careful about that.
I shall conclude on the European Union, and the biggest ambition, which I know that the noble Baroness, Lady Wilcox, will share with me, of achieving the single European market. If we were able to achieve that market, and make it viable for British businesses to use their expertise and energies in it, we would give them a wonderful opportunity to succeed. I shall give an example that the noble Baroness, Lady Wilcox, might like to take up. According to GE Capital, 60 per cent of UK businesses that export into Europe still only export and invoice in sterling. That is not good enough when you are dealing with customers.
I conclude by saying that I am very grateful to the noble Lord, Lord Sugar, for securing this debate. I hope that it can be a productive debate and flow with ideas and that the Government in both their parts can be athletic in responding to the genuine flourishing of 100 ideas, which I hope we hear today.
Baroness Gould of Potternewton
My Lords, like other noble Lords, I thank my noble friend Lord Sugar for initiating the debate. I also thank the many organisations that have sent me information. How pleased I am that the noble Baroness, Lady Wilcox, a successful businesswoman herself, is replying to this debate. It is the role of women entrepreneurs and women business owners on which I wish to concentrate my remarks. I want to try in some way to get a guarantee and an assurance that none of the Government’s new proposals will in any way deter women from entering the business world.
There are different categories of women in business, be it self-employed women, women employee-owners or women entrepreneurs. While each category may have different specific requirements they all require differing degrees of initial funding, refunding and support mechanisms. Encouragingly, the support mechanisms we have in place at the moment have meant that all those categories have steadily grown. However, there still appears to be a perception of women as a disadvantaged group outside the mainstream. That generalisation needs to be broken; it perpetuates a feeling of exclusion for some who have yet to reach a level of awareness to see that anything is possible.
The COGS 2009 report, Challenges and Opportunities for Growth and Sustainability: A Focus on Women Entrepreneurs, provides significant evidence which clearly makes the case for a more holistic approach and dispels a number of myths about women’s business. Women invest as much in their businesses at start-up as do men. Women experience similar rates of job and turnover growth to men from when they started. Women’s turnover growth and job-creation expectations are similar to men’s. Women are prepared to work the long hours in order to make their businesses succeed, and they are more likely to appreciate the business support they get from public and private sources and to feel that they are creating intangible value through their companies, as well as tangible value such as market share and company value. Yet all the women who participate in enterprise offer a wealth of untapped talent and economic opportunity, and are crucial to the service and retail industries.
What, then, is the motivation for women joining the business-owning community? According to the Labour Force Survey of 2007, despite general similarities between the reasons given by men and women there are significant differences. Those need to be taken into account. The most notable difference was that women were five times more likely than men to raise family commitments, the freedom to choose their own hours, to work at home and flexibly; conversely, men were almost twice as likely to say that one of their reasons was “to make money”. That was again evidenced by the COGS 2009 survey, which further identified that 62 per cent of women felt a desire to make a difference either socially, environmentally or in job creation, compared to 37.6 per cent of men.
Women-only businesses already contribute significantly to the economy, with an annual turnover of £130 billion, so without question women’s entrepreneurship is an important driver for economic growth, competitiveness and job creation. Stimulating entrepreneurship is an important challenge for the whole UK. More women-led enterprises are needed to increase the stock of businesses and so contribute to economic growth and innovation.
There has, over the past few years, been significant government investment in a variety of initiatives aimed at supporting women on their entrepreneurial journey. Those have ranged from the strategic framework for women’s enterprise to the establishment of the women’s employment task force and the enterprise strategy. Those initiatives were accompanied by funds, some specifically for ethnic minority women; as an aside, it is interesting that women from ethnic minority groups are more likely to be growth-oriented than men in the same groupings. We should take note of that. There is also the Aspire fund, which was launched in 2008 with the aim of co-investing and investing in women-led enterprises through Business Link.
Business Link has substantially increased its reach to female customers and has made a noticeable difference to the number of women in the SME sector. Overall, it is estimated that women-owned businesses accounted for around one-third of Business Link customers in the past four years. This morning I had breakfast with a woman who is now running her own successful business. I said that I would be discussing Business Link, and she said that she could not have started or continued her business without the support that she got from it.
The coalition agreement raises questions: will the Minister clarify what is going to happen to Business Link if the RDAs are abolished? How will the popularity of RDAs be determined, and will their role in developing SMEs play any part in that decision? It is estimated that women account for 40 per cent of customers using government-sponsored business support services. Which services are going to be maintained?
There is a concern that local enterprise partnerships will have a detrimental effect on the expansion of businesses rather than having a regional structure that means that businesses can stretch across the regions in a simple and easy way. Will there be a continuation of any government funding specifically to assist women starters? The outcomes of these decisions are crucial for women who have not been able to raise funding from their own or from external finances such as the banks, as they are four times more likely to access a source of government grants than men.
Of course, there are different ways of funding, both for setting up a business and for its development, but initial support for business start-ups is critical and for many women it will be the first time that they have sought funding, so they will require support and advice. Again, it is Business Link that has provided much of that support and advice. It will be crucial in maintaining women who are starting businesses. Many women have a lack of self-belief, concerns about finance and confusion about red tape. Those are commonly cited reasons for women not launching their own enterprise, so advice, training and networking are essential elements in taking that leap of faith.
Some years ago I did an Industry and Parliament Trust small business fellowship, looking particularly at the development of women ownership. I spent a day at Barclays Bank sitting in on a training session for women who were considering or wanting to develop or start a new enterprise. What was fascinating was that it was almost possible to identify those who would succeed—it was not those who had just had a bright idea and expected others to help them with it but those who had taken advice, done their research, looked for a gap in the market, had a strategy and a properly worked business plan and developed financial skills. The support mechanism to ensure that they have the capacity to look at all the things that contribute to starting a small business is essential.
The advice has to be clearly understood. There are specific issues faced by women in accessing finance in general and risk capital in particular. Again, this is provided by Business Link. I accept, though, that that support, in the form of financial or personal development initiatives, has to be based on whether the businesses are viable, sustainable and scalable.
According to the British Association of Women Entrepreneurs—I am sure it is right—the majority of women entrepreneurs focus not on the fact that they are women but on the fact that they are business owners, and they are not looking for preferential treatment. However, they want mechanisms in place to encourage and guide those who want to make that dramatic change in their lives and become their own boss. I would like to hear an assurance from the Minister that all the initiatives will in no way be cut, so that there will be no way in which women will be deterred from starting their own businesses.
Lord Borrie
My Lords, I understand that the speakers list has been changed so that the noble Lord, Lord Razzall, will be the last of the Back-Bench speakers and I am therefore in this slot.
I, too, congratulate my noble friend Lord Sugar on initiating this debate. He has many remarkable gifts, one of which is informing people about significant public issues through entertainment, as shown in his highly successful television programme, “The Apprentice”, and its successor. I wish him continued success in that, not for his own sake or for my enjoyment but because the success of that programme is of benefit to the economy in terms of a greater appreciation among its viewers of the value of training, effort, challenge and hard work.
I also congratulate the noble Baroness, Lady Wilcox, on her ministerial appointment and I look forward to her winding up this debate. She has been chairman of the National Consumer Council and she succeeded me as president of the Trading Standards Institute. Particularly from those vantage points, I think that she will agree that the ultimate purpose of business, whether small or big, is the satisfaction of the customers or consumers, whatever you call them. In order to achieve that, entrepreneurs, particularly those in small and medium-sized enterprises, need fair access to credit facilities, the timely payment of money that is due to them for services rendered and rules regarding a matter that has not specifically been mentioned so far today—ensuring fair trading between small suppliers and supermarkets, which seem to be getting bigger and bigger.
My noble friend Lady Kingsmill, who I do not think is present today, said in the debate on the gracious Speech:
“Since the beginning of the banking crisis, we have lost more than 30,000 small firms, and the drying up of bank credit is largely to blame”.
She said that there are too many,
“businesses with solid credit records being refused loans or offered them on … punitive terms”.—[Official Report, 2/6/10; col. 354.]
A short while ago, the noble Lord, Lord Taylor of Warwick, referred to the fact that sometimes these refusals are given without any reason or explanation.
A related aspect of this problem is that SMEs that are largely or even wholly dependent, as many of them are, on reasonably prompt payment of money that is due to them are too often kept waiting because customers—often, perhaps, with substantial resources, though not necessarily—ignore their contractual commitments to pay debts promptly. As someone once put it, “Money delayed is money denied”, a phrase similar to the one that we lawyers are familiar with from Magna Carta:
“Justice delayed is justice denied”.
The Government have made some efforts to ensure that at any rate their own debts to business should be paid promptly and they have encouraged all sorts of government agencies—quangos, if you like—to do likewise. However, despite the passing of an Act of Parliament whose terribly long name is not terribly well known—the Late Payment of Commercial Debts (Interest) Act 1998—to enable people to sue for statutory interest at 8 per cent above the bank rate on delayed payments, it hardly needs me to explain that creditors, particularly small and medium-sized enterprises, are reluctant to engage a substantial customer in legal proceedings. They do not exactly want to lose that major supermarket as a customer. There are not that many alternative customers.
I have wondered whether it might be desirable to enable public officials to take up the cudgels on behalf of several SMEs. Usually, not just one or two but umpteen of them have the same sort of problem with a particular major customer. Officials could do so on behalf of people who are owed long-standing debts and could take the necessary court action. I mention this particularly because the noble Baroness, Lady Wilcox, has such knowledge of trading standards officials and local authorities and she may sympathise with this approach.
There is also a question about a relatively unknown provision—I seem to be devoting myself to relatively unknown legal provisions today—in the Companies Act, which requires that businesses specify their payment plans in their annual reports to Companies House. Apparently, some 4,000 companies do that, as they are so legally required. Unfortunately, another 6,000 do not. The latter are acting illegally. Who is supposed to be responsible for enforcing the law and why do they not do it?
A concern of small suppliers in the food industry is the other problem that I wanted to mention. Farmers, particularly small farmers, and others are often faced with credit terms that are unilaterally extended for the benefit of powerful supermarkets, which have the clout that can rarely be matched by small suppliers. The last Government accepted in principle the view of the Competition Commission, which had carried out a two-year inquiry into this matter, in 2008. It said that what was needed was a grocery market ombudsman to investigate complaints, anonymous or specified, that supermarkets were being paid unfairly and contrary to the detailed code of practice that exists. The Competition Commission accepted that the grocery market was generally competitive—as ordinary ultimate consumers, we all know that the benefits in variety, quality and price of supplies have come to us. However, there are abuses. One of these is retrospectively imposing charges on suppliers to finance some special offer that the supermarket has decided to give to the consumer. There are elements here of what my noble friend Lord Haskel would undoubtedly call a market failure. It needs some form of redress.
Page 13 of The Coalition: Our Programme for Government says that the Government will introduce,
“an Ombudsman in the Office of Fair Trading”,
to curb abuses of power of the kind that I have just mentioned. The Minister will know that a Private Member’s Bill had a Second Reading in the House of Commons in March, not long before the general election. The Bill proposed that the Office of Fair Trading should create, but not itself act as, an ombudsman. The Office of Fair Trading would create an ombudsman that would be, the Bill emphasised, independent. My question to the Minister is a simple one: can she explain more precisely what the coalition Government intend in following up this matter?
Lord Corbett of Castle Vale
My Lords, I, too, welcome the noble Baroness to her new responsibilities and I congratulate my noble friend on the measured and informed manner in which he opened this Labour Back-Bench debate. It is a pity that the monitors do not make this clear so that everyone can know exactly what is going on.
I come from the West Midlands, which is the cradle of the Industrial Revolution. We built the first iron bridge and named a town after it. We built the first iron boat. Men such as Matthew Boulton, James Faraday and James Watt—with his steam engine—pioneered that era’s technology, which gave us immense prestige and power all around the world. More lately, the regional development agency, Advantage West Midlands, has provided £19 million, which has been invested in research and development for some of today’s technology—in this case, low-carbon vehicles. This is centred at the University of Birmingham, which also hosts the national nanotechnology centre. Invention and innovation are in our bones in the West Midlands.
It is an enormous shame that the coalition Government started their life by immediately breaking promises that they gave over the Future Jobs Fund. In the course of that, they will this year deny an estimated 80,000 young people the chance either to set up their own business, or to get the kind of jobs and develop the skills they need to make successes of their lives and contribute to our economic recovery. I do not say this in a flippant manner. The then leader of the Opposition, Mr Cameron, in Liverpool described this as a great scheme. He was backed up by Mrs Theresa May, then a member of the shadow Cabinet, who said that the Conservative position had been “misrepresented” and:
“We have no plans to change existing”,
Future Jobs Fund “commitments”. Little Mr Echo, Steve Webb, on the Liberal Democrat Front Bench, was even more explicit. He said:
“We have no plans to change or reduce existing government commitments to the Future Jobs Fund”.
You could normally bank those promises and undertakings, but they were broken, torn up and ignored, even before the ink was dry on them. In my own region, an allocated 10,100 jobs under the fund will now not happen, and young people under this Government will be forgotten and left to rot, as they were in the 1980s and early 1990s.
The Prime Minister has a great sense of irony. The Minister he appointed as Secretary of State at the Department for Business, Innovation and Skills is none other than the man who spent the election campaign arguing for its abolition, but we will pass gently over that. The smell of power encourages people to change their minds.
I declare an interest as an ambassador for Advantage West Midlands, our regional development agency. Its record is impressive in a region which has stubbornly high unemployment and too low a level of new small business start-ups. In a word, there is a lack of entrepreneurship. Overall, for every £1 invested by Advantage West Midlands, £8.14 is generated for the regional economy. Between 1994 and 2007, new business growth was 1.6 per cent a year—a tad lower than the national figure. Matching national growth would have produced something like an extra 5,000 new businesses in the region. The new Secretary of State for Business has caused great confusion with his remarks yesterday about the future of RDAs. He said that:
“RDAs will be replaced by local enterprise partnerships”.
He went on to say that the RDAs,
“will be replaced, but the structures that emerge could have a regional scope if that is what people want”.
He added further to the confusion that he has caused by saying that RDAs,
“will not perform the same range of functions as they do currently”.—[Official Report, Commons, 16/6/10; cols. 906-08.]
That has got the Government off to a good, clear start, has it not? Significantly, the Secretary of State said not a single word in that debate in another place about the financing of the RDAs. Maybe the Minister will have something to say about this in winding up. What will their funds be? Will they be cut, left alone or expanded? On what basis will they be allocated? We need to know this.
In 2009-10, Advantage West Midlands invested more than £150 million in business support activity, aligned with the then Government’s Solutions for Business products portfolio. This meant that it assisted 28,000 businesses, safeguarding or creating 17,500 jobs and assisting 17,000 people with their skills needs. This real assistance at a time of economic peril will be at risk if the axe is taken to AWM and other regional development agencies. It will deny those opportunities—we desperately need those opportunities to grow our way out of this financial meltdown—to budding entrepreneurs, add to the bill for keeping people idle, slow economic recovery and depress life chances and community cohesion. Now, self-employment among men in the West Midlands is close to the national average. Among women, it is the lowest of all the UK regions. Young people also have lower rates of self-employment in the West Midlands than nationally and the same is true of minority-ethnic groups. Importantly—I know this from the experience of a very successful secondary school in my former constituency in Birmingham—attitudes among young people to starting their own businesses are exceptionally positive, reflecting the success of improved secondary school teaching and learning and the rising aspirations of today’s young people. That, surely, is what any Government should want to encourage.
I wish to give some examples of the success that Advantage West Midlands has had in assisting the start-up of small businesses. Vicky Cargill, of Remote Business Support Ltd, offers virtual PA services, including audio transcription, presentation, formatting to diary management and marketing advice from her home. She took advantage of a three-day start-up course run by Business Link West Midlands, and already has several clients. Peter Morrison of BioFuels International is the first in the United Kingdom to manufacture an eco log made from compost material, 70 per cent of which is fallen leaves. With help from Business Link, he secured the patent pending on the leaf-log invention and he and his partner are now awaiting exclusive rights to trademark the name. An Australian couple, Michele Forge and Stephen Burnett of Greenbean Mobile Coffee Company, set up an Aussie-style mobile coffee company with a difference in Stratford-upon-Avon. They travel between business parks, markets, food festivals and trade fairs in their bright green caffeine machine dispensing hot drinks. Steve Westwood and Emma Wood set up SEMS Wood and Wax. They did not let redundancy or the impact of the credit crunch stop them having a go at running their own business. They have used support from Business Link to launch this wood and wax retail outlet specialising in quality second-hand furniture, candles, holders and fragrances for the home and are currently putting the finishing touches to a 1,000-square-foot store, which will offer a large selection of their goods. Kevin Jew and Kenneth Mole set up KJ Fasteners when their employer went into administration after three decades. They are looking for a turnover of half a million pounds a year. In only the second year of their business, they got help from Business Link West Midlands and are striking out on their own as nut and bolt distributors.
These are all vital pieces in the jigsaw of getting economic recovery going. I say to the noble Baroness that nothing which this Government do should imperil that entrepreneurship. We need to encourage it, not to chop it off, particularly as the recovery is still so fragile. I hope very much that the noble Baroness will clear up this confusion about the RDAs because lots of people, not just those working for the RDAs, have built up a lot of experience. People are looking to support from the RDAs and want to know now—perhaps they are in the middle or early stages of their engagement with RDAs such as Advantage West Midlands—what will happen. I hope that the noble Baroness can put their minds at rest and give them a nice weekend.
The Earl of Erroll
My Lords, I thank the noble Lord, Lord Sugar, for introducing the debate, especially as I am chair of the All-Party Parliamentary Group on Entrepreneurship. I endorse the comments made by the noble Baroness, Lady Gould. There has been a series of events over the past couple of years concerning enterprising women and entrepreneurship. It is interesting to see that some of the things which are perceived as women’s issues are generic to everyone. However, some barriers exist, and a lot of it is due to people’s mindset. Being married to a highly enterprising woman, I have certainly encountered people who see her as a “little blonde”. Someone said to her on a building site the other day, “Goodness gracious, you do know what you’re talking about, don’t you?”, when the job in question was being made a complete mess of.
One of the reasons why I am very interested in this area is that, to me, SMEs are the country’s engine of growth and innovation. The successful SMEs get larger, and larger companies, which tend to rationalise and downsize, swallow them up, which gives the entrepreneurs money to start something else. Big businesses rationalise and downsize SMEs to try to make themselves more efficient. SMEs are not necessarily the most efficient organisations because they are concerned with getting the job done and with growth. Therefore, they do not have time to get involved with tons of regulation and risk.
I wish to break up this subject into four areas: regulation, finance, mentoring and incentive. A lot of what I intend to say applies to all small and micro businesses. They are not all entrepreneurial; many of them are sole traders, one-man bands, but they all have similar characteristics. I often hear it said that about 3 million people are employed in these businesses. That is a very large slice of the taxpaying population and we disadvantage them at our peril. Many of these bodies are not incorporated; they are not limited companies. Therefore, many of the breaks available to limited companies do not apply to them.
As regards regulation, these businesses are terrified of inspections, with all the HSE issues. They may not be aware of all the regulations in relation to their VDUs, offices and the disabilities Act, but they are meant to be complying with them. What is worse, they do not know what it is that they do not know. As regards contracts of employment, they may not be able to write an acceptable use policy for computers. They may not know their rights regarding monitoring and what they should put in place to protect themselves should inappropriate material be sent out via their e-mail address. All sorts of issues arise that small businesses may not be aware of. Moreover, the staff are concentrating on running the one thing on which they are expert.
As a result, people such as my wife who would have expanded their businesses to a far greater extent do not dare risk employing people in order to do so. They do not know whether they will say the wrong thing when conducting a job interview and be sued. That is very easy to do. You do not take someone on to become an extension of the social services; you take them on to work for you and to help you try to build a business. You are told that certain exemptions apply to companies that employ below a certain number of employees, but does that refer to head count or full-time equivalents? If you are a sole trader and you employ someone to do the garden or help clean the house, are such domestic employees included in your head count of employees, even if they are non-business staff? Where will you find out that information? It is too detailed. The procedures for getting rid of someone who does not fit in or do the job are totally inhuman. If they have a problem such as depression and the employer sends them an official letter, what is the first thing they will do? Will they commit suicide? Do you really want to do that to someone? In a small business, you are living on a far more personal level with these people. The procedures laid down by civil servants sitting in large offices just do not work in small businesses.
I entirely agree with what the noble Lord, Lord Sugar, and everyone else has said about procurement. The unintended consequences worry me. For example, the Equality Act says that the Government will drive the equalities agenda by government procurement throughout the supply chain. That is a clear intention. That could wipe out small businesses further down the supply chain. How many small businesses can, or know how to, tick the relevant boxes on equality, climate change, energy, sustainability and all the other bits and pieces and conditions that you are expected to fulfil on a government procurement contract? As the noble Lord, Lord Taylor, said, you cannot get on a government procurement list if you cannot tick the boxes. I think that the noble Lord, Lord Sugar, also mentioned that, and it has been referred to by several other noble Lords. The trouble is that the Civil Service perceive risk as not ticking boxes; it is not about failure. They say, “If you don’t have 14 months of accounts, you are probably not secure enough”. The Government have lost a lot more money with the failure of large systems integrators on the NPfIT, the Rural Payments Agency and several other large contracts than they will ever lose from a few small contractors going out of business. It would be a lower risk to get small innovators in there and to stop wasting huge fees of up to £9,000 per day on consultants who have no incentive to conclude a contract.
A lot of finance for start-ups comes not from banks but from friends and family. People do not really know what to do at this level. There are one or two business angels, but you have to know them personally. Sometimes the Government step in competently in some areas where people are better organised. The Welsh Assembly Government and Finance Wales have helped several people I know to get off the ground and become established there. There is a long way to go, but it is worth it, and there are some good set-ups. It is sad that, in certain other places, RDAs have not been able to emulate that, but it may help local areas.
The Government’s tax regime makes life difficult for cash flow. If you have a really good year, you will have to pay up front half the tax on next year’s possible profit, and that hits your cash flow. If you then want to invest, perhaps in equipment, you will not have the spare cash to do so. It is not taken off your tax in its entirety in the first year. In your first year, you will save only the tax percentage of the depreciation due that year. If your tax rate shoots up to 40 or 50 per cent, it will take you much longer to repay the capital loans that you have put into your business. This happens in any business. You do not think about doing it. It makes such investments uneconomic.
Then, the Government do things like proposing an extra eight days’ holiday. That is equivalent to a sudden 3.5 per cent pay rise. What will you do when these people are not working? You suddenly have to bridge the gap, because you no longer have people to do the accounts. How do you employ someone for half a day a week? Sometimes there are many unintended consequences of measures such as this.
We have talked about the banks. There was a big issue over rebalancing the balance sheet and calling in well secured overdrafts. The banks left the dodgy companies alone but called in the overdrafts of people who were well secured. That bankrupted a few businesses. As for the “know your client” rules and foreign investors, I have been involved in development and I know that it always runs late. People will suddenly need a cash injection and foreign investors, who are sometimes ex-pats who have made a lot of money, may be willing to take a small risk for £10,000, £20,000 or perhaps more. Have you tried to get money into a company in such circumstances? Perhaps you are setting up a new company with a foreign investor and trying to get past the “know your client” rule. I have seen companies go bust while waiting eight weeks or more, which is normal. Does that really prevent money laundering, as it is supposed to? Of course it does not.
The Government should invest heavily in infrastructure. We must have a good IT infrastructure if small businesses are to flourish from wherever they start. They are situated all over the place and are frequently not in town centres.
Mentoring is vital. Enterprise UK, the Chartered Management Institute and the Worshipful Company of Information Technologists mentioned to me that they have helped in this area. I highly recommend that noble Lords look at what these organisations have done. Many entrepreneurs are visionary. The trouble is that they often do not know how to run things. You need someone who knows how to dot the “i”s, cross the “t”s, talk to the bank and put together a business plan that has roots in reality somewhere down the line. That is difficult. I am delighted that Business Link has taken a huge turn for the better. Its image was that failed business people tended to end up there. It is wonderful to hear that it is getting better.
At the end of the day, this issue is all about incentives. It is sad that we have a tax structure that forces our highly successful people to go abroad into tax exile while we are a tax haven for other people. The answer is not to tax the foreigners but to have a favourable tax regime whereby our successful people can stay here to redistribute their wealth locally. That will boost employment and diversify skills. Such people do not sit on their cash; they either reinvest it or spend it. That employs more people. If you want to get the economy going quickly, allow people to keep some money. The Government will employ people on the big, heavy stuff and for the box ticking and paper pushing. Entrepreneurs who make money will spend it on other things—skills and the arts, including craftsmen and high-value people, and not the cheapest possible labour.
Finally, there are two other types of business. Some people are building lifestyle businesses, as the noble Baroness, Lady Gould, said, while others are building up businesses to sell and restarting again. Make sure that you let them keep their money so that they can restart here.
Lord Mitchell
My Lords, I congratulate the noble Baroness, Lady Wilcox, on her new position. I know that she started in a family business. I hope that she never forgets her background because it is crucial that in government she represents us in all these areas.
Sometimes I wish that Members of the other place, who are often dismissive of your Lordships' House, could be present at a debate such as this. There is real expertise, born of experience at the coal face and able to voice opinions and recommendations that really do have validity. Interestingly, of the 11 Back-Bench speakers, eight come from the Labour Benches. This contrasts with what I suspect happens in the inner circles of the Treasury and Her Majesty’s Revenue and Customs, where a PPE at Oxford seems to be the prime qualification for running the tax affairs and business policy of the nation.
I thank my noble friend Lord Sugar for introducing this vital and highly topical debate. The noble Lord is an entrepreneur to his very core and his successes are there for us to see. He started his business life selling aerials from the back of his car. I started mine selling vacuum cleaners door-to-door. You do that, you learn a lot and you never forget. But my noble friend has done more. When I started running my own business in the early 1970s, people thought I had taken leave of my senses. Not only was it risky, but it was somewhat socially unacceptable. Nice boys—never nice girls—where I came from joined banks, became chartered accountants, solicitors, or, heaven forbid, even estate agents; but start a business—never. In those days, we were simply not an entrepreneurial nation.
However, my noble friend Lord Sugar, through “The Apprentice”, has brought the thrills and spills of being an entrepreneur into the sitting rooms of the nation. Now people know that business is challenging and brutal, but is also fun and creative. We must thank him and others like him for changing attitudes very much for the better. I have to say that I notice young people coming out of universities, even those from Oxbridge, who are rejecting going into the City or the professions. They want to get into business as quickly as they can.
Being nice to SMEs is not just about speaking warm words, but goes to the very soul of our economy. In the United States, it is estimated that between 1985 and 2005, nearly all new net jobs were created by firms that were five years old or less. This amounted to 40 million jobs. That means that established firms created no new net jobs during that period. I bet that the same is true here. Unemployment will not come from bailing out losers, but only from new companies with new technologies and new business models. Think British Airways and then think Virgin and Ryanair. Think Apple, think Microsoft and think Google. None of them existed 30 years ago; indeed Google is only 12 years old. That is where the growth and jobs are to be found.
This new coalition Government will not get this sort of entrepreneurial growth if they continue in their plans to decimate our education system. Maybe Labour in government did not get everything right, but we were very clear that you cannot build a 21st century economy if you hack into our schools, our universities and our colleges of further education. What is proposed by the coalition Government for science is truly scandalous. The previous Prime Minister, Gordon Brown, has become much maligned, but he was always very clear that small businesses were key to our prosperity and that the tax system should reflect it.
I speak as a serial entrepreneur. In my career, I have founded and grown three quite separate businesses in the IT services sector. Each became a market leader, and two had major operations abroad. I created employment and my companies provided a vital service in the high technology marketplace. In each case, I sold my shareholding when I thought that it was time to move on. To be honest, it was when I became bored.
In 1987, when Margaret Thatcher—now the noble Baroness, Lady Thatcher—was running the show, I sold one company and was faced with a sizeable capital gains tax bill. It was in the region of 40 per cent. Today, 23 years later, writing out that cheque still hurts. Four years ago, I sold another company when new Labour was in charge and I paid 10 per cent capital gains tax. Now tell me, my Lords, which Government were pro-business and pro-entrepreneur? It is very clear that capital gains tax is going to increase—the Lib Dems demand it. On the other hand, many in the Conservative Party are against any change. The coalition is divided down the middle; next Tuesday we shall see who has won.
To me, it is very clear what a capital gain is. It is when an investment is made with the intention of securing a gain over a period of time; it is about the expectation of gain but the possibility of loss; it is about risk; it is about the medium to long term; but, most of all, it is about investment in business. Today’s CGT situation is plainly bonkers. It is far too wide and 18 per cent is clearly inappropriate for all classes of assets. However, I really believe that 18 per cent or something like that rate should remain in place in respect of genuine investments in business where the investment remains in place for the medium term—say, three years. In the UK, we tend to love complex, arcane tax rules that few understand. If there are to be changes, let them be simple.
During the recent election, the Lib Dems, and the Deputy Prime Minister in particular, fought the campaign on the subject of fairness, so I now propose two ways in which CGT and the tax system could be made much fairer and generate significant taxation revenues. The first, referred to by my noble friend Lord Sugar in his excellent speech, concerns the area of reward known as carried interest. These days, hedge funds, venture capital funds and private equity funds gain most of their return from carried interest. When a fund is set up and investors are located, the fund usually pays the managers an ongoing management fee—usually in the region of 1 or 2 per cent per annum of the fund’s value. This amount is used to run the business. However, in addition, when the investors eventually receive their investment back, any additional gain is usually split 80 per cent to the investors and 20 per cent to the managers. The investors have clearly put their capital at risk and any benefit they receive is a very legitimate capital gain and should be taxed as such, but how about the 20 per cent in the hands of the managers? Is that a capital gain? I do not think so. It is a fee earned by the managers and, as such, it should be taxed as income, but currently it is not; it is taxed as capital. This is not fair and should be reversed.
Secondly, continuing the example of unfairness, I want to refer to a particular bugbear of mine which I have raised in your Lordships’ House several times before. It is the subject of non-doms—people who were born abroad and are able to avoid tax on their non-UK generated income because they are effectively non-domiciled. This was a hot potato three years ago but it went off the boil when we in government dealt with it in a half-hearted manner because we were frightened of upsetting the City. If the Government want to be fair and courageous, they should say the following. If you were born abroad but live in the UK and you have lived here for seven years or so, then you have become a de facto resident. As such, you should pay tax on the same basis as the rest of us, and it should be based on your worldwide income. That is what the Americans and most other developed nations do. It is only fair. If people say, “Well, that’s too much. We’re off to Singapore or Geneva”, I shall say to them, “It’s better to be taxed to death than bored to death”.
It is not my Budget; it is Mr Osborne’s. However, if it were mine, I would make it small-business-friendly, I would keep CGT at its current rate for business investment and I would have no hesitation in plugging the carried trade and non-dom loopholes.
Lord Graham of Edmonton
My Lords, it is a joy and a pleasure to speak in this debate initiated by my good friend the noble Lord, Lord Sugar. When I first met him in the House, I looked him straight in the face and said, “PCW 9512 - Amstrad”. He laughed and said, “You haven’t still got one of those, have you?”. I said, “Yes. For our ruby wedding anniversary 20 years ago, my wife bought one of these and, give or take the odd little hiccup, it has served me well”. He said, “Get another one. Bring it up to date. There are better models out now”. He tried very hard but failed. I am sorry to say to my noble friend that it still works and gives me pleasure.
By now, my noble friend Lord Sugar should know that if you come into this House preceded by a reputation and a record of achievement, that speaks much louder than the words that you use and the speeches that you make. So we thank him very much for initiating this debate and for opening it so brilliantly.
I see from the Annunciator that the subject of the debate is “The Effect of Government Policies on Entrepreneurship and Small and Medium-Sized Businesses”. Of course, one cannot cover the whole spectrum, but we have had a feast today with various people speaking from different points of view. However, I want to speak from the perspective of the small business that has grown into a big business, and, with the support of this Government, as with the previous Government, there is more to come. I refer to credit unions and co-operatives. I tried to intervene during a Question on that subject this morning but did not manage to do so. The point I was going to make was that only last year the Department for Work and Pensions reported that those who used the services of a credit union paid £86 million less in a year than they would have done if they had borrowed the money from what one might call loans sharks, or small businesses that appear to be generous and fair but are not. In the context of the billions that we are talking about, £86 million is not a lot of money, but I am talking about little people.
Coming from the background that I did, one thing that inspired me was the realisation that one needs capital and capitalists, as well as big business and experience. We should not forget that invariably every big business was once a small business that was well managed, well directed and lucky, where those running it hit upon something that was not already available.
My main experience is of the Co-operative movement, and I shall come to that in a moment. However, in my view credit unions are a success story, and I know, because of what she said earlier, that the Minister will agree that they need to be encouraged and supported. I am not talking about large sums of money; I am talking about being loved and wanted and being part of the big picture. Nothing has pleased me more in life than going into a boardroom or a committee meeting and coming across what I would call ordinary people—men and women who have no pretence to be accountants or experts—who have taken on the running of a business, such as one in the Co-operative movement or a credit union, and are doing so because their heart is in it. They are not in it to get big fees or to make a profit from selling shares but because they know that their community needs it to keep going.
When I was very heavily involved in the Co-operative movement, there was a saying that the Co-op never made a millionaire or a pauper. I would rephrase the first part, as I think that they have made a few millionaires over the past few years. However, because of the soundness and ambition of the people that run them, no one has ever lost their money. I am talking about ordinary people who see a need in their community.
In Rochdale in 1844, weavers and mill workers, bereft of what you might call the wherewithal, having been failed by the churches and the Chartists, decided to form a co-operative, and from 28 people the movement grew. Now, the Co-operative movement is big business. It takes over building societies and successful retailers; it employs hundreds of thousands of people; and it is a success story. It has ambition. The great ambition of the Co-operative movement is to become mainstream in relation to the business community. What does that mean? It means simply that our rules, regulations and legislation have inhibited the spread of co-operatives. When the Minister replies, it would be helpful if she could say something about the ongoing relationship between the Government, the departments and the Co-operative movement.
At one time we knew the Co-operative movement as the CWS, the Co-operative Wholesale Society. It has now changed its name to the Co-operative group. When I was involved, the other body was the Co-operative Union which changed its name to Co-operatives UK. It is astounding that, many years ago, if one talked about the Co-op, one simply referred to the shop on the corner because, in the main, the Co-op was primarily a consumer-oriented business. We now know that the Co-operative movement is much more than that. It has always been and still is the biggest farmer—not a landowner—in the country. It has a big business in banking and insurance. I am not taking this as an opportunity to knock the banks, bankers or big institutions. Their reputation has taken a knock recently and people are examining the term “trust” in relation to the banks.
This could be a golden opportunity for the expansion of people-oriented businesses. What do I mean by that? The amount of money required to establish a credit union is very small, but they do a big job. I do not wish to bore the House, but I have some statistics. Partnerships with credit unions are big business: 60 per cent of credit unions work with schools; 60 per cent with employers; 57 per cent with housing associations; 50 per cent with citizens advice bureaux; 26 per cent with Jobcentre Plus; and 12 per cent with prisons.
The idea of a credit union is that one regularly contributes a small amount of money and so has access to loans. Twenty years ago, one of the fears was that they were being run by amateurs, people who did not understand accountancy and so on. That has all changed. They are now very successful businesses. Perhaps the Minister could tell us about the marvellous concept of marrying the credit unions with the Post Office network. The Post Office is struggling to maintain business, but with the nexus of credit unions, it could provide a banking service, built on reserves and backing from a wider movement. It could be a kind of people's bank, and it would be an opportunity to marry the two together.
I see that my time is up, although there is a great deal more that I could say. I am grateful to the Minister, who is a friend of mine. I respect her record in this area. I know that she will be good for the department where she works. I thank my noble friend Lord Sugar, as his presence in this House will be good for all of us.
Lord Razzall
My Lords, I join other noble Lords in thanking the noble Lord, Lord Sugar, for giving us the opportunity to express our views on this very important topic. I also congratulate the noble Baroness on her appointment, as she joins other Liberal Democrat colleagues in the department.
I should make it clear that I do not speak for the Government but for the Liberal Democrat partners in the coalition Government. Listening to all the contributions, one thing on which we can all agree is that it is vital that as little damage as possible is done in the Budget to SMEs, as it is now generally accepted that significant growth in the economy can come only from that sector, particularly, as a number of noble Lords have indicated, in the high-technology businesses which spring up. If they are fortunate enough to be owned by the noble Lord, Lord Mitchell, they will be sold for large amounts of money.
In an ideal world we would not be contemplating tax increases or any form of cuts in expenditure. Listening to the eight Labour speakers who have spoken so far—I think every speaker has come from the Labour Party except for the noble Lord, Lord Taylor—one would imagine that we live in a perfect world which they have created for the small business sector. To be fair, I do not think we can look at the problems that the Government face without looking at the overall state of the economy, left behind by the Labour Party.
Perhaps I can put on the record some of the numbers which we now have from the Office for Budget Responsibility. In relation to the Government’s forecast for growth for the next four years, by 2014 the estimate is that the economy will grow by only 2.6 per cent as opposed to the 3.5 per cent that Alistair Darling put in his last financial statement. Much of that growth will come from the SME sector, but it will be significantly less on this objective forecast than anticipated. Looking at the debt figures, one ray of sunshine in the Office for Budget Responsibility figures was that the actual borrowing costs for this year will be significantly less than originally forecast but, even given that, by 2014 we shall still be borrowing in that year £71 billion, of which £51 billion will represent the structural deficit, which means that the deficit that will not be eradicated by growth in revenues.
Other horrendous figures include the following: the spending on social security for this year will be £169 billion, which will rise to £192 billion in 2014. Perhaps the most shocking figure of all is that the interest paid on the British Government’s borrowing will rise from £42 billion this year to £67 billion in 2014. Those are absolutely shocking figures and explain why, when those figures were made available to the Liberal Democrat members of the coalition Government, we changed our minds with regard to the necessity to take action now. We went into the election believing that no action should be taken for the first year; we agreed with the Labour Party, but it had the information and we did not. For that reason we have changed our minds.
Listening to the eight Labour speakers, we would get the impression that all was well in the garden of the SMEs on their watch. I am not entirely sure that that is correct. As the noble Lord, Lord Taylor, said, we are regarded as the 16th country in the world for the ease of starting a business. We ought to be significantly higher. I will not touch on the restrictions, which the noble Lord did very ably. The noble Lord, Lord Mandelson, when he was Secretary of State—he is now, I understand, known as the third man—introduced many initiatives, many of which were unproven. Several speakers have rightly said how successful the Business Link centres were, but by the time that the Labour Government went out of office, it was unproven to what extent many initiatives were helping or were unhelpful.
Then there is the issue of the control of the banks, especially those in which there is significant taxpayer investment. The noble Lord, Lord Sugar, referred in his opening remarks to the witty exchange that he and I had on another occasion, when he said that he was misquoted as saying that anybody with a decent idea and a decent business plan could easily get a loan from a bank. Listening to what he said this morning, I got the impression that that is still his view. From my experience with clients and anecdotal evidence, that is not the case. Banks have made it much more difficult for small businesses to take advantage of loans. Often, they have required personal guarantees from entrepreneurs where no personal guarantees would have been required in the past. They have often required significantly increased interest rates. The general bureaucracy involved with a lot of the clearers in obtaining loans for small and medium-sized enterprises has been a problem. No one I talk to disagrees that that has been a problem. The overall problem has been that a large amount of capacity was taken out of the market with the collapse of the Irish and Icelandic banks. If all the clearers lent the same to SMEs as they did before the collapse of the market, a third or a quarter of the capacity would still not be there, so there would still be a shortage of funding.
It has become clearer recently—I am grateful for the research that has been done by the Institute of Directors—that it appears that under the Labour Administration, during the boom years of what are now known as the noughties, one-third of FTSE 100 companies paid no tax at all, while one-third paid only a nominal amount. Notwithstanding the marginally lower rate of tax for SMEs, during the Labour period, the SMEs’ share was disproportionately greater than that of the FTSE 100 companies. That clearly bore heavily on the SMEs.
What should the Government now do? We have had a very interesting debate on capital gains tax, and the noble Lords, Lord Sugar and Lord Mitchell, have come up with a lot of interesting ideas about what, even if the capital gains tax rate is to be increased, can be done to protect the entrepreneur and small businesses. The Government need to review the “Mandelson initiatives” to see which of them should be left in place—which of them have been effective—and which of them should be closed down as ineffective. The Government need to concentrate on the mechanics to achieve greater lending from the clearers, particularly those in taxpayer control, to SMEs.
To make a slightly partisan political point, bearing in mind the mess in the economy with which the Labour Government have left this Government, as Mr Attlee once said to Mr Laski, “Perhaps a period of silence on this topic would not come amiss”.
Lord Young of Norwood Green
My Lords, I, too, congratulate my noble friend Lord Sugar on securing this debate and on his excellent contribution.
Although I did not agree with much of what the noble Lord, Lord Razzall, said, I agree that this debate needs to take place against the backdrop of the coalition Government’s economic strategy. Recently, George Osborne was keen to point to the recently agreed G20 communiqué on the need for countries to reduce their budget deficits. He failed to acknowledge that the agreement also requires countries to put in place credible growth-friendly measures. The communiqué states:
“The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances”.
The communiqué mentions growth-friendly measures, not just deficit cuts.
Removing key support for industry, as the coalition Government advocate, far from strengthening the economy, will weaken it. The Government seem to see spending cuts as the silver bullet to rebalance the economy—something stressed by David Cameron in a recent speech at the Open University and by the recently converted Chief Secretary to the Treasury, Danny Alexander, who said:
“The best thing that we can do to increase growth and create jobs in this country is tackle the enormous budget deficit”.—[Official Report, Commons, 8/6/10; col. 171.]
Again, nothing is said about the importance of creating growth opportunities.
Far from having a plan to support growth, the coalition has, in its first acts, undermined growth by cutting regional development agencies, which support businesses across the country. My noble friend Lord Corbett gave a graphic account of the importance of Advantage West Midlands in helping SMEs to create new business opportunities. The Government have also created uncertainty for industries of the future by their decision to review the Labour Government’s policy of supporting those industries—new industries that have the potential to be strong and create jobs, whether by producing low-carbon cars or in the nuclear industry. Targeted government action can unlock the private sector investment that brings new jobs. That is why we decided to invest almost £1 billion in key industrial projects spanning a range of industries: aerospace, low-carbon electric cars, nuclear advanced manufacturing, and wave and tidal energy. If the coalition Government pull the plug on the Sheffield Forgemasters loan, for example, they will display a complete lack of vision for Britain in the worldwide nuclear supply chain.
Interestingly, in the belief that cuts are the way forward, Vince Cable said that he wishes his department to be the department for growth, but he sees no role for government and indeed wishes it to get out of the way. We believe that there is a vital role for government. It is not enough to have a strategy for deficit reduction; we must have a plan for growth.
The noble Lord, Lord Razzall, reiterated the determination to say that we—the previous Government—left the economy in the worst possible position, while seemingly he did not worry about the impact that saying that has not only in this country but abroad. I thought that the Office for Budgetary Responsibility’s recent report was interesting. Although the growth forecast clearly fell short—of course, we had not been able to take into account what happened in the eurozone, which will clearly have a big impact on growth—the report pointed out that the deficit in 2009-10 has reduced from £166.5 billion to £156.1 billion. Government borrowing was £10.4 billion lower than forecast at the Budget, proving that the Labour Government had taken a cautious approach in their forecast of public finances; indeed, we had set out a plan to halve the deficit over four years. We therefore reject the view that we left the economy in a terrible state.
There are now significant examples of the recovery being under way. The economy grew in the fourth quarter of 2009 and the first quarter of 2010. Retail sales rose by 4.3 per cent in the year to April and manufacturing output rose by 3.3 per cent in the year to March. Interestingly, the OECD forecasts that the UK will achieve faster growth than the eurozone or Japan in 2011. That does not sound like a complete record of failure, as the Government are alleging. I could cite other statistics but, given the time, I shall not. However, one is interesting: company insolvencies are at one-third of the rate that they reached in the recession in the early 1990s. Unemployment is significantly lower than it is in the US or the eurozone and claimant count unemployment is half the level that it reached in the early 1990s recession. On capital gains tax, the Minister has had a lot of sage advice from my noble friends Lord Sugar and Lord Mitchell, so I do not think that I need to expand on it.
I want to emphasise some of the measures that we took. We cut corporation tax to 28 per cent, which is the lowest rate in the G7. We doubled the capital tax allowance to encourage business investment in 2009-10. Contrary to what the noble Lord, Lord Taylor of Warwick, said, the UK has the lowest barriers to entrepreneurship of all OECD countries and, last year, was ranked fifth in the world by the World Bank for ease of doing business. There is clearly a clash of analysis or research here, but I stand by that evidence. From April 2010, the annual investment allowance will be doubled from £50,000 to £100,000, which will provide further incentives for SMEs to invest in their businesses. The enterprise finance guarantee scheme has helped almost 9,000 businesses to access loans totalling more than £900 million. The number of businesses claiming R&D tax credits has continued to rise. The time-to-pay scheme has allowed more than 200,000 businesses, which collectively employ 1.4 million people, to delay more than £5 billion in business taxes on a timetable that they can afford. We introduced the strategic investment fund, which is worth £950 million, to provide investment in advanced industrial projects where specific market failures are preventing otherwise viable developments.
There has been an interesting debate on the value of the Business Link service. I know that my noble friend Lord Sugar feels that there is an opportunity for it to make some savings, but it is providing benefits in advice and training. My noble friend Lady Gould gave examples of the important help that it gives to women. On procuring government contracts, in 2009 we announced that businesses would no longer have to pay a fee to search for government procurement contracts worth up to £100,000. The Labour Government said that they would provide thousands of free business opportunities to SMEs. I noticed that the noble Lord, Lord Sassoon, announced a further development, which is a move in the right direction. We also facilitated the opening in August 2009 of the National Enterprise Academy, the first UK educational institution dedicated solely to enterprise and entrepreneurship. Later that month, we joined forces with the Federation of Small Businesses to offer up to 10,000 graduates internships in small businesses. That is a vital area of co-operation. The Labour Government also reduced the time taken by government to pay its bills from 90 days to 30 days. I would welcome some assurance that the Government will keep moving in that positive direction, because we know that that is another incentive for businesses to embark on government contracts.
I am conscious of the time. I think that I have previously congratulated the noble Baroness, Lady Wilcox, on her appointment, so I shall not reiterate that. Before the election, the parties now in government made quite a lot of noise about how they would assist business, especially SMEs. The test for them now is that they have to deliver.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, I congratulate the noble Lord, Lord Sugar, on securing this debate and giving us the opportunity to discuss these issues which are so critical to our country’s future. The noble Lord, Lord Graham of Edmonton, said the most encouraging things about the noble Lord, Lord Sugar; I shall leave that with him because he knows him so well. The noble Lord, Lord Graham, also spoke on behalf of credit unions and the Co-operative movement. I know him to be an expert and passionate supporter of them, and I wonder whether he will be prepared to let me write to him on them more fully after the debate.
Baroness Wilcox
The noble Lord, Lord Sugar, has done a huge amount through his success, his television work and in visits to schools and universities to inspire the next generation of British entrepreneurs and young apprentices. He spoke passionately about apprenticeships, and it is a passion that I share. I still have my father’s apprenticeship deeds as a journeyman carpenter. He eventually became a master cabinet-maker, and I remember how proud he was of that journey and how it prepared him to become the successful businessman that he was and to encourage his son and daughter to train well. Here I stand today, so I am very grateful to him and to the apprenticeship system as it was then.
Our Government has already announced that £150 million cut from the Train to Gain programme will be reinvested to create up to 50,000 new apprenticeship places this year. The Government are determined that small and medium-sized enterprises should be supported in securing apprenticeships, and that is why we intend to introduce an apprenticeship bonus to help small businesses to participate. We also want to overcome other barriers that may make it difficult for such companies to take on apprenticeships, as well as to ensure that the training received is of high quality and brings real benefits to the individuals and to the businesses concerned.
The noble Lord, Lord Harrison, spoke about skilled workers. The ability to think innovatively and entrepreneurially is highly valued by employers, and utilising the skills and ideas of their employees will help all businesses to grow. Skills provision and training need to be accessible, relevant and responsive to the needs of business, and we want to free colleges to be able to respond quickly and flexibly to the skills needed in their communities and to harness the power of sector skills councils to improve skills and qualifications at all levels.
On fostering enterprise and driving growth, as a Government we are ambitious for Britain’s future, but we recognise that the private, not the public, sector is best placed to generate prosperity and jobs. Ultimately, it is Britain’s 4.8 million small and medium-sized enterprises that will lead that recovery. We believe that government can most help those businesses by securing the best possible conditions for their success and then getting out of their way.
We want a rebalanced economy—one built on strong enterprise and balanced, sustainable growth across industries and our country, and not one built, as in the previous decade, on a debt-fuelled spending boom, an inflated housing market and an overleveraged banking sector. That means, first, tough talking and tough measures to tackle Britain’s budget deficit. Next week, the Chancellor will set out in an emergency Budget how we plan to cut the bulk of that debt over this Parliament. Such constructive action is essential to strengthen market confidence, bolster investment and give our entrepreneurs the space they need to start businesses and prosper. To that end, we have already identified and agreed to cut over £6 billion of wasteful spending across the public sector. This is, however, just one—albeit crucial—part of the work that we need to do to sustain our economic growth in the decades ahead.
We want the next decade to be the most entrepreneurial and dynamic in Britain’s history, and we are prepared to start now. We are building the competitive business environment to make it happen, so that Britain’s entrepreneurs can get the support and capabilities they need to start and grow a winning business, without the burden of unnecessary red tape and regulation. The noble Lord, Lord Taylor, talked about keeping life simple. He also talked about black and minority-ethnic entrepreneurs, and I agree with him that we can do more to help those underrepresented groups. That is why we have committed to setting up the targeted national enterprise mentoring scheme for black, Asian and minority-ethnic individuals who want to set up their own business.
The noble Baroness, Lady Gould, talked about women entrepreneurs, which was very pleasant for me to listen to, and I thank her for highlighting their importance. We want to maintain an open dialogue with female small business owners and entrepreneurs to hear directly from them what it is they need, and what they see as the key barriers to starting and growing their businesses—barriers like failure in the education system to build aspiration and skills, the need to promote suitable role models, and problems accessing finance.
In the coalition document we set out our commitment to get banks lending again to viable SMEs. The Government are determined to ensure that the banks, including those part-owned by the state, honour their agreements to supply credit on acceptable terms to SMEs. The noble Lords, Lord Sugar and Lord Taylor of Warwick, both raised the issue of the detail and nature of feedback given to SMEs when their applications for lending are turned down by banks. Currently, in the banks’ lending code, they will offer feedback should applications be rejected on request. In some cases the detail of this feedback is dependent on the size of the business. Smaller companies may get a brief automated response, while larger ones may get more comprehensive information on why their application was not approved. We are working to strengthen the voluntary codes with the banks, and this is ongoing. It is also important that banks recognise the need to rebuild trust and relations with their business customers, as well as continuing improvements to business education on financial matters. We will work with the industry to take that agenda forward.
With regard to the proposed credit adjudicator, we believe there would be serious market implications to the state intervening directly in banks’ commercial decisions, and that would not be appropriate. The creation of this body would also add to a field where professional support from trade bodies, accountants and financial advisers is available to help SMEs access credit. In our consideration of the most effective way to provide support and education to businesses, we will engage with these experts on provision of advice.
The noble Lord, Lord Sugar, spoke about efficiencies of Business Link. I share his view that there are efficiencies to be made in how we deliver business support. No decisions have yet been taken on this; however, the Government’s business support offer needs a rethink. We are prepared to do that and will look to him to help us, if he feels able to do so.
In this context, we must make sure that publicly funded support at all levels is more effective and works in partnership with private sector services. That is why we want to enable local authorities, located in natural economic areas, to work with business to form local enterprise partnerships. In reply to the noble Lord, Lord Corbett, these may cover the same geographical area as an existing RDA if that is what works best in that locality. Equally, however, they may take a different form elsewhere if that is what local business wants. We have an opportunity to create a modern, cost-effective business support system targeted at what business needs. It is a complex issue, however, as those of you who have been in government and have worked through this over the last 10 years will recognise. We need to consider all the options carefully and we will work closely with the business community. We are also in discussion with the RDAs as they continue to deliver existing business support services.
A World Economic Forum report now ranks the UK 84th out of 133 countries in terms of the competitiveness of our tax system, and 86th for regulation. These perceptions stifle good ideas and deter valuable investment and, over the next few months, we will reform our corporate tax system to make it more competitive, simplifying reliefs and allowances, and tackling avoidance to reduce headline rates.
We are already working to stop the most damaging effects of the previous Government’s tax on jobs. In addition, we want to make sure that all eligible small businesses benefit from small business rate relief, and we are looking for practical means to automate this, freeing up SMEs to get on with growing their own businesses. Taxing capital gains made by individuals and trusts helps raise revenue, ensures a fairer tax system, and reduces opportunity for tax avoidance. To be truly effective, however, a CGT system must also encourage enterprise and support entrepreneurship.
For business owners, entrepreneurs' relief provides a CGT rate of 10 per cent up to a lifetime limit of £2 million. This relief covers the vast majority of entrepreneurs in small and medium-sized enterprises. The coalition agreement commits the Government to maintaining generous reliefs for entrepreneurial business activities. Further detail on CGT reform will be provided at the emergency Budget on 22 June. I am obviously not able, therefore, to say more at this stage.
Our Government are also determined to make the UK the fastest place in the world to set up a business. We believe every small business could do more, and grow more, if small business owners did not have to spend so much time on pointless bureaucracy. We are starting a revolution in Whitehall. We are cutting red tape by introducing a “one in, one out” rule for regulations; we are empowering the public to challenge the worst regulations; we are ending the culture of tick-box regulation and, instead, targeting inspections on high-risk organisations. We are establishing a new committee of experts to end unnecessary regulation; we are imposing sunset clauses on regulations and regulators to ensure every regulation is regularly reviewed; we are ending gold-plating of European Union rules so that British businesses are not disadvantaged relative to their European competitors; and we are making it easier to set up a limited company with a new one-click registration process.
It does not end there. We want to open up the opportunities for Britain’s SMEs to sell their goods and services around the world with the support of UKTI, and to enable these companies to win their share of valuable public sector contracts right here at home. We are the first Government to set out an ambition that 25 per cent of government contracts should go to SMEs. We are also going to do whatever we can to make it simpler for more of Britain’s small and medium firms to bid for, and secure, this business.
In conclusion, our commitment to a five-year coalition Government gives us, I believe, the long-term institutional stability necessary to make the right choices about the future for our country. We know what we need to do and what the private sector wants us to do. This Government are focused on restoring balanced, sustainable growth to Britain’s economy and fostering enterprise must be at the heart of our efforts.
I again thank the noble Lord, Lord Sugar, and all noble Lords for their valuable contributions to this important and interesting debate. I have been able to answer only one or two questions in the time allocated to me and I hope that your Lordships will allow me to write in reply to those I have not answered.
Lord Sugar
My Lords, I express my belated congratulations to the noble Baroness, Lady Wilcox, on her new role and I thank her for her comments. If required, I would certainly make myself available to assist in reviewing the future of the Business Link centres. I also thank the noble Lord, Lord Taylor, for reminding me of that excellent example of Reggae Reggae Sauce, and the noble Baroness, Lady Gould, for focusing our attention on the importance of women in business—something I fully endorse.
I would say to the noble Lord, Lord Razzall, if he does not mind, on his comment about people having to put up their houses or give personal guarantees to get loans, why not? If you are not prepared to take the risk on yourself, why should a bank?
We have had a wide-ranging debate on the subject and I am grateful to all noble Lords who have spoken. Time obviously prevents me making further comment, but I am sure that we will return to these matters after the Budget. I therefore beg leave to withdraw the Motion.