Lord Leigh of Hurley
That this House takes note of the role that businesses, including SMEs, play in creating and spreading wealth, improving life chances, and contributing to the communities in which they operate.
Lord Leigh of Hurley (Con)
My Lords, the wording of today’s debate is, I hope, carefully chosen. It goes to the heart of what our political economy is all about—and, indeed, the very purpose of our Government: that is to say, prosperity and how to deliver it for all our citizens. We Conservatives believe that it is individuals, entrepreneurs and businesses that hold the key to delivering that prosperity, not government spending. Of course government has a role to play in levelling the playing fields to deliver equality of opportunity, but it is business, through the creation of jobs, as the debate’s title suggests, that has the greatest potential to improve life chances.
By now, we all know that the capitalist system is the best system there is for increasing a community’s well-being, but we on this side of the House believe—and should say—that the private sector is better at running enterprises than the state and that a bigger role for the latter, while it may appear superficially attractive, is not a panacea. In fact, for those who can remember, the 1970s speak for themselves as a decade when the state had a far bigger role to play in our economy than it does today—and economically it was a disaster.
The reason I am keen to lead this debate today is that this simple truth is in danger of being lost. The idea is increasingly taking hold, particularly among our younger people, that businesses are not good at improving life chances, and that only big government can do that. Businesses are there to be punitively taxed so their wealth can be redistributed—a necessary evil. This vision is a poor one and we need to do better.
Business, entrepreneurship and wealth creation need to be seen as our best chance to improve life chances. We need to remind all that one of the best ways of improving life chances is to start your own business. We cannot sustain a position where businesses are a soft target for political point scoring, with their role poorly understood or, worse, maligned. Many of us recoil in horror at the prospect of nationalising industries at the cost of billions to be run by civil servants. It is up to us to show that free enterprise is the best and only way to maximise living standards for all our citizens.
Sadly, the covenant between business and society seems to have broken down. Even the relationship between government and business has frayed. When businesses spoke up in the EU referendum, they were not seen as trusted voices, even by their own employees. It was as though they had an interest of its own that was not even aligned with their staff, let alone the rest of the country. One Brexiteer said to me that their campaign received the best boost imaginable when Goldman Sachs was reported as giving Remain £500,000.
In the recent general election campaign, business was conspicuous by its absence. We must hope that it will not be as inconspicuous in the forthcoming negotiations on our exit from the EU because we need its voice. We need to understand the impact that any deal would have on business and to respond accordingly. I believe that its interests should be, and generally are, aligned with those of employees and with the national interest.
What I want to talk about today is how to reset the narrative that is currently engulfing business and the private sector and chart a course towards them once again being seen as trusted actors in our society, our communities and even as part of our political discourse.
If young people want answers to the question, “What does the Government or the Conservative party offer young people?”, I would say it is through our partnership with business, investing in skills to help young people access good jobs, such as the excellent progress on the apprenticeship scheme, or through creating an environment in which people want to start businesses of their own. This is how we improve life chances.
It is a matter of some regret that the Conservative manifesto did not really offer any encouragement for people to be entrepreneurs, start businesses and offer encouragement for rapid growth, so is it any wonder that the business community no longer trusts government—and, even worse, that the public no longer trust business? The key word I have just mentioned, of course, is “trust”. That is ultimately what we have lost. The Edelman Trust Barometer makes for difficult reading—only 33% trust business today, a historic low. How did it come to this?
I hope your Lordships’ House agrees that entrepreneurs deserve popular acclaim, as do small businesses. Indeed, they are worthy of policy support. This is why, despite the situation I have described, I am still proud of the Government’s historic record on entrepreneurship. Through entrepreneurs relief or the extension of the EIS and VCT schemes, we have successfully made the UK still the best place to start and grow a business.
Having started a business myself and enjoyed the thrill and risk of struggling to survive, let alone flourish, I understand truly that new small businesses rarely have time to raise their head above the parapet—or, indeed, the laptop—and consider their wider responsibilities. Life is just not like that.
This leads us to the conclusion that the real responsibility lies with larger businesses. This is where the reputational damage has been most profound and it is not difficult to understand why. Whether it is aggressive tax planning at many multinationals, such as Starbucks and Amazon—the latter, along with eBay, making it hard for UK retailers to compete owing to offshore, online retailers avoiding, or even evading, VAT—the dubious labour practices at Sports Direct, or shabby treatment of pensioners at BHS, these have become the defining examples of big business. For all these examples we have had rebuttals that the business in question did nothing wrong and that it acted within the law. It is exactly that kind of response that causes trust in institutions to plummet. This needs to change if we are to safeguard the idea that businesses can improve life chances.
The central issue is that when businesses reach a certain size, they become community actors in their own right, alongside government institutions and NGOs. In fact, if you create a new category called economic actors ranked in size, grouping together national GDP data and corporate revenue, of the 100 biggest economic actors, 37 would be companies. Faced with this important responsibility, businesses can go one of three ways. They can, first, continue to maximise profits, obey only the letter of the law and effectively abuse their position; secondly, behave this way but mitigate it with a corporate social responsibility programme that seeks a reputational dividend basically through better PR; or, thirdly, run their business as a genuine stakeholder in the community, recognising the contribution that local business and infrastructure have made to their success.
Unfortunately, business has become synonymous with the first two and not enough with the third. Look at the website of virtually any top 350 company and there will be some community responsibility guff written by a PR adviser that will almost certainly be fatuous. Make no mistake, though: unless we see more of the third route, we will not begin to restore trust in business. Indeed, because they are such significant actors, people may not trust government to hold businesses to account because it is simply not able to—they are too big. This means business must step up on its own.
But I want to use this debate to highlight some positive examples of businesses that share this attitude, which act responsibly and can lead the way for others to follow—not because of the law but because it is the right thing to do. Many noble Lords will know about Marks & Spencer and Plan A. Everyone seems to remember that it was the first to charge for plastic bags before it was the law, but there was much more to it than that. In fact, there were five key benchmarks for it to be measured against: first, become carbon neutral; secondly, send no waste to landfill from its own operations; thirdly, extend sustainable sourcing; fourthly, set new standards in ethical trading; and, lastly, help customers and employees live healthier lives. These are all self-evidently worthwhile aims and something any business should aspire to, but what was extraordinary was that when the board at Marks & Spencer signed off on the plan, it did so thinking it would be loss-making. Here is the point around which this whole debate might revolve. As it turns out, instead of a projected cost of £40 million, it turned into a £50 million gain as consumers responded to this new approach. They liked the clever ideas such as recycling all the plastic hangers they had consumed.
Or take Sellafield in the north-west. It integrates local community needs into its corporate decision-making by agreeing socioeconomic objectives with the local community. For example, its recruitment approach includes targeting local unemployed and underemployed people. This goes to the heart of my earlier point: such is the ability of Sellafield to impact on the community in which it exists, it simply has to take responsibility itself.
So it is not enough for people to rely on government to use the law and regulations to drive better business behaviour; business simply has to step up. I will raise some examples from my own industry, financial services. Of course, I refer your Lordships to my interests in the register. Take Bridges Ventures. Here I want to give credit where it is due. It was founded off the back of the Social Investment Task Force, set up by Labour in 2000 and endorsed in 2013 by David Cameron while he was president of the G8. Its purpose was to invest in business that put social impact before profit.
Surprisingly to many, it has been profitable throughout its life—and by investing in businesses that do good as well as make money. In particular, it has invested in creating jobs in areas of social deprivation, delivering improved health and education outcomes, and even reducing carbon emissions. The Government, its original investor, saw their capital returned and then some.
And Bridges shows us another feature. I have argued that it is the responsibility of large businesses to contribute to their communities—yet, lo and behold, Bridges invests in SME businesses which seek to find ways to tackle societal challenges while maintaining, and often enhancing, capital returns. So it can be done.
In modern capitalism, we may have seen the limits of government, whether national or global, in constraining the actions of multinational corporations, so we should be realistic about what the OECD, the G20 and even the UN can do to set global standards for corporations to follow. Instead, the baton must be picked up by businesses themselves. They need to be rewarded by their customers. If they are not seen to be acting in the interests of the communities in which they operate, we can only hope that a healthy form of populism will succeed in curtailing their activities where international regulation has failed.
Nations may want to throw up trade barriers, set tariffs on goods, and even take control of companies and whole industries, ostensibly in the name of protecting jobs. If they do that, all they will see is, first, a reduction in productivity, followed inexorably by a reduction in prosperity.
So let us single out, identify and praise those initiatives and enterprises contributing the most to our community and apply all the pressure in our power to ensure that others follow their example. I hope that this debate will lead the way and I beg to move.
Baroness Dean of Thornton-le-Fylde (Lab)
My Lords, I thank the noble Lord, Lord Leigh of Hurley, for the opportunity to have this debate. Business and the economy had little showing during the general election. I hope that this debate will give us an opportunity to address that.
The noble Lord mentioned the 1970s. It was almost a walk down memory lane for me, because the impression I was given was that private is good and public is bad. I do not see life like that, nor do I think that it is like that in business today. The title of the debate refers to business—not to private business. I want to talk about two areas which are very important to the British economy. Both have to make a surplus to succeed, because no one will subsidise them, but not for distribution to shareholders or individual management.
The first area is social housing, a sector which is receiving a lot of publicity at the moment because of the tragic events at Grenfell Tower. The other area is universities, which are so often local and regional powerhouses of ideas and innovation and provide the entrepreneurs that the noble Lord referred to. I declare my interests as declared in the House of Lords register.
On social housing, Places for People, of whose board I am a member, is a leading place-making company—it is not a housebuilding company; it is concerned with communities. We have 186,000 homes in ownership or management and provide services to some 500,000 people. Yes, we are in the business of providing homes: 1,300 last year, with 16,000 more to come.
However, homes without the accompanying infrastructure of new schools, shops and leisure facilities do not create communities where people want to live. Even then, that is not enough; we need job opportunities, access to learning and training. Housing associations have done that over many years. They are businesses; they contribute to our community. That is why the housing association sector is essential in place-making. I was on the board of a private housing developer. We built houses, we sold them and we moved on. Housing associations do not do that; they have always done much more.
Local authorities today are not able to regenerate communities as they have done in the past. Now, housing associations are often the largest organisation in the area. Last year, Places for People was named Residential Company of the Year and Housebuilder of the Year—both awards won in the face of strong competition from the private sector.
However, it is really in its local community work that the company delivers what brings real value to residents and is at the core of this debate: 700 people were supported into employment last year, with more than 3,000 in education and training, and just under 4,000 young people in 76 local projects. A company work experience programme provides six months’ paid work placement for 18 to 24 year-olds. I do not know many small businesses that could afford to do that. Those youngsters are not in employment, education or training—they need help, and they get it.
Enterprise growth programmes in Yorkshire are at the heart of this, creating 80 new businesses with 215 jobs and 29 social enterprises. There are 400 community activities and more than 100 training opportunities, including green space apprenticeships. There is support for the Passmores Academy in Harlow. Redevelopment of the Olympic Park here in London includes 7% of all construction staff having apprenticeships, scholarships and the Futures Fund to support local entrepreneurs, and 80 days a year of time-bank mentoring. There are many other examples.
This is an exceptional contribution to local communities and, by creating and spreading wealth widely, it improves the life chances of many who would otherwise be left to fend for themselves. The work of many housing associations also contributes to the overall good and supports their localities. When the Minister winds up today, could he confirm that the Government agree that housing associations need to be able to work in the wider community and should not be pushed down this funnel of just producing houses and apartments? Will the Government ensure that their policies do not get in the way of this?
The other area that meets the criteria of this debate is the university sector. We have been slow in the UK, in many areas and cities, to realise how much power can be given to the local and regional community, to the benefit of the individuals in it as a whole. Education can and does transform lives and, in turn, communities, and has a national impact. Our universities are key to that.
On the council of Nottingham University, I have seen how much can be achieved when a university puts diversity at the heart of what it does day by day. First, it goes into the local community and works with young people from very disadvantaged backgrounds who never thought university was for them—it was something beyond them. For 20 years, the Young Entrepreneurs Scheme has seen real benefits. The Nottingham Ingenuity Fund again helps and works with young entrepreneurs. It is an equity-based investment fund, which last year alone donated £800,000 to fledgling businesses in the Nottingham and east Midlands area. I am sure the Minister responding to the debate will be pleased about that. The Summer School Society, with 300 members, has a mentoring scheme with the university alumni, who work with young people, and offers a year-long work experience programme.
This is all about putting students first, not when they are at the university but beforehand, going into the community and seeking out bright young people who have potential but do not have the chances or support of many other more fortunate young people. There is involvement in two Nottingham academies. Our students are our representatives in the community and at the centre of everything we do. That pays off for the students and, this year, for the university. We got a gold standard in the recent teaching survey; we are the number one university in the country for graduate job placement when students get their degree, and in a survey just out for the first time of university graduates five years on in their careers, Nottingham students are on average on a higher salary than the group surveyed. These are real, solid contributions. Yes, it is not the private sector but it is part of our business community, like it or not. These solid contributions open the pathways to success for so many.
Members of your Lordships’ House know about the Parliament day and have been involved in it. Business needs to come to Parliament more than it does and to showcase what it does more.
The success of our university sector is insufficiently recognised. I agree with tuition fees. If we remove them, we will bring back capping in universities. The removal of the cap helped lower-income families. I do not agree with the removal of maintenance grants, and I certainly do not agree with the interest rates at the moment. So many of us are perplexed by the Prime Minister’s attitude to international students. They come here because of the quality and standard of our university education. I plead with the Minister to feed back to the Prime Minister that it is essential that she discusses that and removes what is to me a dogma.
Lord Shipley (LD)
My Lords, I thank the noble Lord, Lord Leigh of Hurley, for giving us the opportunity to debate the role of business. I agree with him that this debate is about delivering prosperity for all. Wealth creation matters, and the private sector must lead that wealth creation, but that can be helped by socially responsible business activity. I agree with the sentiments of the noble Baroness, Lady Dean of Thornton-le-Fylde, that building communities, place-making and helping young people are central to a healthy society.
Business should not simply be about maximising profits or maximising shareholder value to the exclusion of other benefits. The CBI’s Great Business Debate identified that only just over half of the general public think that business makes a positive contribution to society. Given the taxes businesses pay and the jobs they create, this should not be the public perception. That it is means that we have to work harder to make the role of business better understood and better supported by the public, and by “we” I really mean businesses themselves, though there are policy changes the Government could lead.
We need to ask ourselves why people react so negatively. There are several reasons. Too many businesses have reputations for low pay, zero-hours contracts and instability of employment for their employees, and at the same time there is seen to be excessive pay for a few. In addition, in many larger companies, shareholders are felt to be more important than stakeholders, and since those larger companies account for 40% of all jobs, maximising shareholder value at the expense of other values can impact negatively on spreading wealth, improving life chances and social mobility, and investing for the long term in communities.
There is a distrust of businesses that make big profits at the expense of their employees or of their communities more generally. Business has to put social benefit higher up its list of values and objectives, not least because consumers are now much keener to buy products which are environmentally sustainable and socially responsible.
We should question whether businesses do put the communities where they operate first. In some cases, they do, but I fear that in too many cases they simply do not. Hence, in small towns, the closure of a big employer can have devastating consequences for the economy of that town as a whole. When a company makes a decision to send jobs overseas to achieve what are sometimes comparatively low savings in costs, it can have a significant effect on people who used to have those jobs. That is not to urge protectionism, but it is to urge social responsibility.
The number of private sector businesses has risen from 3.5 million in 2000 to 5.5 million last year. This results in part from a rising population but also from a big rise in self-employment. What can business do to improve its standing? First, onshoring and reshoring jobs should be encouraged by both government and by business itself. Businesses should note that productivity of employee-owned businesses is growing faster than the economy as a whole. It was up 60% in the last year, with 200,000 employees in employee-owned businesses. Such businesses can be a much better way to do business, and I thank the John Lewis Partnership for its briefing for this debate which drew those facts out.
We should be promoting social accounting—employee training, employee well-being, good supply chain policies and social and environmental impacts should all become more important for companies. The lead that companies such as Unilever have been providing is, in my view, a good example. I should like banks and lenders to think more about regional investment for the long term, not in terms of making a quick profit in the short term. I wish larger businesses would pay their bills more quickly to smaller businesses and I hope that all businesses will take active steps to help us reduce youth unemployment. There are 800,000 young people under 25 who are not in employment, education or training, of whom 42% are looking for work. All businesses have a role in helping here: some provide excellent examples of training schemes and apprenticeship schemes and we need more.
As for what the Government can do to improve matters, I suggest that local enterprise partnerships should be asked to promote social enterprise more. The Government should review the Companies Act to make stakeholder interests more equivalent to shareholder interests. I should like the British Business Bank to address regional investment imbalances more than it may be doing. There is evidence to suggest that it is not the lack of funding which is a barrier for new or expanding SMEs; rather it is access to sound information and advice on finance options. The Government need to take another look at business rates. It is clear that some small firms and businesses feel penalised by business rates in their current form, not least in the retail sector, where they face enormous competition from the internet. Perhaps the Government should review start-up allowances for SMEs, to help with living costs for those setting up new businesses in the first few weeks of that new business. I know that the Government plan to move ahead speedily with faster broadband, but they need to make sure that they deliver. I am also not convinced that, for very small companies, digital tax returns five times a year should be seen as a priority. Perhaps it can be for medium-sized businesses, but for the very small ones, it is an onerous duty.
In the current economic climate business needs stability in which to flourish. Brexit is adding uncertainty; the level of consumer debt may limit business growth; we have rising inflation, and there may be a rise in interest rates. Cost pressures for small businesses are at their highest level for several years, which may restrict wage growth for small firms’ employees. I think small businesses are going to need help with Brexit, particularly where they have never exported anywhere other than the EU. The Government’s industrial strategy must generate small business growth, not just growth of very large companies. I remind the Minister of the importance of international students. In my view, they are key to enabling SME creation and expansion and they should be taken out of net immigration numbers.
In conclusion, I draw attention to a helpful new index on SME business health produced by the Clydesdale and Yorkshire Banking Group. It says that the business health of SMEs softened in the first quarter of 2017. The Government need to do all they can to reverse that, because SMEs are the engine room of the British economy. Above all, we should urge business always to remember its stakeholders. Simply aiming for profit and shareholder value is not the way to build strong, socially responsible businesses.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I, too, thank my noble friend Lord Leigh of Hurley for introducing this debate on such an important subject in an area he knows well and to which he has devoted much of his working life. In more than 30 years in business, the first five within a large American bank and the last five as a partner in a small financial services firm, I have witnessed some of the best and probably the worst business practices of our time.
There is no doubt that the 1980s were a time of excess, when perhaps the greatest contribution the City made to society was to the nation’s balance of payments and to its tax coffers. But we have moved on from those days, and in spite of all the banker bashing following the financial crisis of 2008—itself caused in large measure by excessive leverage in the world’s major economies—there is much we can be proud of in the increasing importance given to corporate and social responsibility by companies of all sizes.
As an advisor to the board of London Pensions Fund Authority, I witnessed at first hand its adherence to the principles of responsible investment, formerly known as ESG—environmental, social and governance. Although returns on investing in infrastructure or housing might in themselves be attractive, equal weight is given to the public good of providing employment, easing the journey to work and addressing local housing needs.
Large numbers of businesses provide charities and communities with vital support, through the provision of expertise and advice as well as cash donations. As the chairman of a very small social action project—a community centre known as the Pump House Project —I am eternally grateful for this support. The recent arrival of 13 reconditioned computers by First Line IT at knockdown prices, which were in turn paid for by Sovereign Homes, has enabled us to establish an invaluable digihub to serve the entire community.
Businesses have always engaged in philanthropy. As early as the 15th century, when the guilds of medieval Europe were established, codes of conduct were drawn up that frequently included some form of direct responsibility for the poor. A shining example today is the Garfield Weston Foundation. Supported by its UK business interests, it will quietly give away its billionth pound to UK charities some time later this year.
In addition to the donation of time and money, businesses are increasingly going further, placing a commitment to corporate and social responsibility at the heart of their day-to-day practices and operations. In the City, UBS set up and sponsored the Bridge Academy in Hackney 10 years ago, and retains an active involvement on the board, in its funding and in securing job opportunities for its pupils. On a much smaller scale, at Disruptive Capital, we endeavoured to fill entry positions through the City of London’s outreach and apprenticeship programmes. Your Lordships will all know of the Timpson family’s brilliant work recruiting ex-offenders as well as in training hundreds of apprentices every year, but probably will not know that the very small shirtmaker Emma Willis supports a community sewing project in Stroud which helps bring together diverse members of a very poorly integrated, disadvantaged immigrant community by developing a common skill. Since she started this, and started donating bespoke shirts for injured soldiers who have suffered amputations, her business has become increasingly profitable.
The growing tech sector is particularly committed to the concept of sustainable business—witness Nominet Trust, the country’s leading social tech funder. Founded in 2008 by Nominet, which manages more than 10.7 million domain names that end in “.uk”, it has donated £39 million to date. In all these ways and others, business is showing that it can be a tool for good and is playing a critical, albeit not always recognised, role improving lives and creating prosperity. As Maimonides wrote a thousand years ago, the highest form of charity is to create a job.
A recent report by the Centre for Social Justice endorses all these views. Its research concludes that the efforts businesses are making to embrace their social responsibilities are not only benefiting charities and communities—although this clearly could be reward enough—but are benefiting the businesses themselves. The CSJ’s report finds that when companies take their social and environmental responsibilities seriously, their brand value and reputation are enhanced, levels of employee engagement and productivity increase, and rates of employee retention improve. For all these reasons, and others, far from compromising financial returns, social impact invariably provides exciting opportunities for financial reward.
New SMEs in particular, employing as they do a large proportion of the working population, seem to be making an increasing contribution on various fronts, from recruiting a diverse workforce to engaging with their local communities. Some, like buddi, a tech company developing and manufacturing wearable medical technology, have a product that itself embodies a spirit of corporate and social responsibility, proving that intelligent start-ups can be profitable while also having a positive societal benefit. Organisations such as Business in the Community spread this message effectively. Other large companies, including banks, have social impact funds which put these principles into practice.
So there is both a moral and an economic case for businesses to take their social and environmental responsibilities seriously. Many already do, but I hope that those which do not will take the lessons I have outlined to heart. It is possible for business to be successful and to solve social and environmental challenges. As Jonathan Sacks—the noble Lord, Lord Sacks—wrote in The Dignity of Difference:
“From trade, both sides gain. When we value difference the way the market values difference, we create a non-zero-sum scenario of human interaction. We turn the narrative of tragedy … into a script of hope”.
Baroness Neville-Rolfe (Con)
My Lords, I congratulate my noble friend Lord Leigh of Hurley on securing the first government day debate of this “Long Parliament”—at least, I hope it will be a long one, given the scale and the importance of the Brexit challenge. I pay tribute to my noble friend’s contribution to business and to his excellent speech, with such compelling examples of positive modern capitalism. We started in this House together, and there have been many advantages in sitting on these Red Benches. Debates and parliamentary scrutiny are laced with knowledge and experience, and Members of this House on all sides bring genuine insights. They are not always listened to in a world of trivia, partisanship and short-term horizons. Our committees produce distinguished and perceptive reports, as is often commented on, but, as my noble friend Lord Sherbourne of Didsbury said on 27 June, we need a better system for holding Ministers to account on whether and how they have taken account of such reports.
It is fair to say that I have had one big disappointment in discussion in your Lordships’ House. I fear that it is the lack of appreciation and understanding of the importance of business—although not today—not just economically but in several other ways. I want that remedied, because of the wealth that business provides, the taxes that it pays, the many millions of jobs for which it is responsible and—this is important for today—the social cement created by businesses up and down the country.
I say that having worked in several companies large and small in retail, in food manufacturing, in broadcasting and digital, and in services. I know from experience that businesses that are well connected to their communities are successful and improve the economies and societies in which they operate, through leadership, management, jobs and training and the creation of value for the customer or consumer.
A simple example would be the regeneration schemes that we pioneered in Tesco around some of our stores in some of the poorest city areas. We gave jobs to the long-term unemployed, we improved diet because more fresh fruit was eaten, and we made people in the company proud to make a social contribution. This is a good example of community actors, to pick up one of the terms used by my noble friend Lord Leigh.
I would say that small business—I worked in small business and came from a farming background—is the salt of the earth, and plays a huge part in creating wealth. Less well-known is the fact that, according to the Federation of Small Businesses, small businesses provide more employment for those who are disabled than medium-sized or large businesses: 11.4% of those who work in businesses with fewer than 50 employees are disabled, compared to 10% for medium-sized businesses and 10.3% for large businesses. The FSB also supports the Conservative manifesto proposal for a national insurance holiday to encourage employment of those with mental health problems and disabilities, as well as veterans and ex-offenders.
I am especially delighted that my noble friend Lord Younger has now taken on responsibilities at the business department, as well as for education and skills, because bringing those together is so important to today’s debate. It is also great to see my noble friend Lady Sugg on the Front Bench. On the needs of small business, where are we on implementing the various legislative provisions on late payment and when will the Small Business Commissioner start work? I ask that because late payment cheats the creditor and erodes the social cement that we see in strong societies.
Since services represent 80% of our economy, it would be wrong not to pay tribute to our financial, professional and business service industries, all of which I had the pleasure of dealing with as a Minister. I was always amazed at their support for talent and training. Moreover, the financial and professional services sector alone contributes £71 billion a year in tax, with the City Corporation being a historic example of corporate philanthropy and pioneering apprenticeships. The City and guilds together have contributed huge sums over generations to help the disadvantaged and dispossessed, and also to support music and art. My noble friend Lady Bloomfield gave us the example of Nominet. I loved her comment that the highest form of charity is to create a job.
In preparation for this debate, I asked various businesspeople what they thought would make the most difference to business prosperity over the next five years, and three themes emerged. The first was visibility and stability. It is difficult to make plans and to invest, given the regulatory and other uncertainties arising from Brexit. Even worse, they said to me, is the political uncertainty: the risk that an extreme Government —a bigger risk perhaps now than they thought only a few weeks ago—might throw prudence to the winds, trash the economy, intervene before dinner, tea and breakfast, and destroy the tax incentives that have helped to fuel UK growth and employment. The consequences of that could be worse than in the seventies, which my noble friend Lord Leigh mentioned and which is etched on my memory as a young person entering the workforce—dustbins piling up, the three-day week, and so on. One businessperson even said that a Brexit settlement with safeguards—for example, limits on state aid—could help to limit the damage of that political scenario. On our side of the House, we are determined to avoid a nightmare scenario.
The second theme was that businesspeople want us to create a better business environment in the UK; they want us, the politicians, to do that, so that we can attract investment—meaning world-leading investment in infrastructure, especially transport, in housing, as mentioned by the noble Baroness, Lady Dean, and in skills and digital. We need lower costs for doing business, not a constant process of accretion of cost and regulation. I was not in the same place as the noble Lord, Lord Shipley, but we did agree on some points; we agreed on late payment, and I also very much agree with him about the importance of reviewing business rates, which the Government have undertaken to do. It is also important to find a way of keeping women in the workforce, with flexible working to suit those with family pressures, provided that that does not create disincentives to their employment in the first place.
Thirdly, we need to articulate the opportunities for the future—for example, new trade agreements. If we could set out a clear plan over the next two to five years for Brexit and global trade, it could be tested, debated and invested behind. Business needs the same sense of vision and options for the new post-Brexit world. Perhaps the Minister could kindly update us on the Government’s intentions.
Finally, tone and attitude are important. Businesses feel unappreciated by us politicians, and the butt of savage challenge and blame if things go wrong. Working collaboratively on opportunities where business is bringing its strength and expertise to build the future would be an enormous help.
Baroness Lane-Fox of Soho (CB)
I thank the noble Lord, Lord Leigh, for initiating this debate. I think that he would have liked to join me on a trip that I made to Newcastle in 2010. I was working as the digital inclusion champion for the UK, and I was spending a lot of time investigating places where young people particularly were learning new digital skills. This young man that I met on a very wet and rainy morning in Newcastle has stayed with me and sometimes sits on my shoulder when I feel as though I am becoming like white noise on this particular subject. He had been homeless, had had a terrible drug addiction and had ended up in a shelter, which encouraged him to go to a drop-in location to learn some new skills—not necessarily digital. He had learned to code but, more than that, he had learned how to make music online and had started a small business selling his music. He was confident that, with the amount of money he was now beginning to make, he would be able to move out of the accommodation he was in and rent somewhere nicer. A small story, perhaps, but to me a profound one. Some people, 10, 15 or 20 years ago, would not have believed that through the power of a click of a mouse you could give yourself so many more opportunities in life.
Perhaps this story touches me because I feel as though I have also had these incredibly lucky experiences. My life was somewhat unexpectedly transformed by technology when Brent and I started lastminute.com, nearly 20 years ago. To me, it felt then as though the great promise of this new technology would be its democratising and equalising power. To a degree, that has been true, but I would like to challenge both the Government and the sector that we have only just begun the job and we need to make sure that we finish it, in order for everyone in our country to enjoy the benefits of this amazing technology and the benefits that it can bring to individuals in enabling entrepreneurship and building business.
Many things are going incredibly successfully. Noble Lords might have seen the Tech Nation report from earlier this year giving details on both tech investment and new businesses in our country. This debate will apparently last around three hours, during which, if noble Lords stick to time, three new technology businesses will have been started in London alone. We now employ 1.5 million people in the technology sector and, last year, £7 billion of inward investment came into the sector, which seems extraordinary to me. When Brent and I were looking for funding for our first business, we had only one venture capitalist who would even consider investing in an online travel company. So there are many things that are going very well. Tech Nation estimates that there is a £56 billion opportunity if we can continue to create businesses at the rate that we have successfully achieved over the past two years. I make special mention of my co-founder Brent Hoberman, who has done a huge amount to increase the reach of the sector through his Founders Factory network. It has encouraged corporates to invest in start-ups and is truly matching the larger businesses with the new innovations and helping them to grow.
But we are a dislocated and divided country. There is no way that you could argue that these opportunities are available to all. If we look just at small and medium-sized businesses, and particularly at sole traders, of whom there are so many millions in the UK, 40% of those businesses have no digital skills at all—none—and a further 20% have only the most basic of skills. Some 78% of sole traders have no digital skills at all. I refuse to believe that this is not in direct correlation to our export numbers and productivity. We know that digital skilled workers are two times more productive than those without those skills—it is the difference between £103,000 of lifetime value and £50,000. This is a profoundly important situation for the UK—skills are endlessly talked about but not, I would argue, in the detail that we need. We must enable small and medium-sized businesses and sole traders to become the digital entrepreneurs of the future. I do not believe that all businesses need to be digital, but I certainly believe that, to have a successful business, you need to understand it.
I pose two challenges, first to my own sector and secondly to the Government. I was so happy to hear the noble Lord, Lord Leigh, mention Marks & Spencer. I served on the board and was part of those Plan A discussions, and was absolutely privileged to be part of the Plan A board—the subsidiary of the board that reported back. Those decisions did not feel complicated or difficult; it felt like good business, as the noble Lord said. The technology sector needs to take some lessons from Plan A and its forward thinking. I disagree, I am afraid, with the noble Baroness who cited the interesting ways in which the technology sector is becoming more diverse and encouraging more non-traditional business and charities to grow. I think that the sector needs to grow outwards much more, make bigger links into communities and do more to help on the issues that we face.
I argue that we need to have a digital sector that does not just demand things for itself but helps to make the whole country grow. Ask not what technology can do for you but what technology can do for your country, perhaps. I was somewhat dispirited after Brexit to see the tech sector come out with a list of lobbying claims for the Government—things that it demanded and needed—as opposed to thinking how this ultimate connectivity could help us as a country connect again and give more people opportunities in the sector that is the most rapidly growing part of our economy. Therefore, I believe that we must encourage the digital sector to do more to help small and medium-sized businesses grow their digital skills and help sole traders and more people such as the young man I encountered in Newcastle get the skills they need to move themselves up and obtain work which is profoundly important for them.
People love technology but are wary of it. We need to work hard to make sure that more people have access to the same opportunities that everybody in the sector enjoys, but we also need government to play its part. I am delighted to hear the Government’s rhetoric about ensuring that the UK is the best place to start a digital business. But how about making sure that it is the best place to have a business, and that every business has digital skills and is able to flourish in the modern age; or even better, making sure that it is the best place to start an ethical digital business? I believe that we can go further and with more detailed plans. I would be interested to hear from the Minister about specific plans for digital skills for small and medium-sized businesses, and whether there is an opportunity to create more of a cajoling role for government in encouraging existing technology companies to do more in their communities, perhaps through the digital charter.
We must encourage as many citizens as possible to become successful entrepreneurs. I am not a technology reductionist; I have just had the most incredible experience in my own life in relation to how technology can level the playing field. Literally sitting at a computer wherever you are, you can have an idea and export it around the world. These may be outlying examples, but we need them. We face so many crises in this country on so many levels, from climate change to the mass movement of peoples and how we are going to make the country feel connected again after the fractures of the last year. The internet does not have all the answers, but it certainly has some. Therefore, I encourage us to enable more of our citizens to enjoy these opportunities, not just people like me who are born with all the advantages.
Baroness McGregor-Smith (Con)
My Lords, I am delighted to take part in today’s debate and thank my noble friend Lord Leigh of Hurley for initiating it. I really do believe that business plays a part in creating and spreading wealth and improving life chances. It certainly did that for me. I want to share some of my experiences of living in Britain since I was a child and explain what more business needs to do to improve life chances for everyone.
I came to the UK when I was two from Allahabad in northern India. My parents always believed that coming here would create a better future for me, and subsequently for my sisters. It has certainly done that, but it was not easy. It was not easy growing up as a child in Bayswater and White City, thinking that one day I could be successful. I recall it being a pretty hostile environment for many people like me. However, today, I want to talk about what made things different for me as I grew up—namely, when I began to work in the services sector.
Today, the services sector accounts for 75% of businesses in the UK, 79% of employment and 72% of turnover. I recall my parents always saying to me that what would open the doors for me, given my race and gender, was a qualification. Therefore, I chose to train at BDO as a chartered accountant, when I got in. What surprised me was how work gave me such a great focus and a huge amount of confidence and made me begin to believe in myself. Around two years after qualifying, I joined the outsourcing industry, which was very fast growing and exciting and accepted talent from people of every background. This industry has a mixed reputation in the UK and has faced many challenges, but we should not underestimate what it has done for so many people.
When I joined Mitie, which stands for “management incentive through investment equity”, in 2002, I was struck by its share ownership model, which gives people the opportunity to invest in their own business. It was the only public company that did this and is still the only public company that is allowed to do it. Every public company should look seriously at how it can spread share ownership for individuals. This was not for the elite; it was for painters, roofers, landscapers and cleaners. All of them got an opportunity to invest in share ownership in some way, shape or form. That is really significant, because it is important to make our young people today realise that they can be part of a business’s success.
Today we have all heard about the John Lewis model, and I absolutely applaud what it has done. As we know, it is the largest employee-only business in the UK and I would like to see many more of them. I am very struck by the words of its founder, John Spedan Lewis, who believed that partners who share knowledge, power and profit have better businesses. Employee engagement, productivity, brand reputation and retention of staff all improve under this model.
Having a passion for what you do all day is incredibly important, whichever business you work in, but I believe that all of us—especially those known as the privileged few—must give others the opportunities that we were once given. All businesses need a very strong social purpose and to give back to the communities in which they operate. That means not just giving money to charities but encouraging all their employees to do something. When I was a chief executive, I always took the view that that could be anything. Examples were raising money for charity, skills training, going into schools to talk about when you first got into work, mentoring apprenticeships, supporting those from disadvantaged communities and helping on environmental projects. The list goes on and on, and every company in the country should encourage its employees to do something.
When I first became a chief executive, I agreed to become a trustee of Business in the Community. All its members tackle a wide range of issues that are essential for building a fairer society and a more stable future, and I applaud BITC’s passion and approach. It believes, as I do, that responsible business is the best form of business. I recall leading a “Seeing is Believing” visit for Business in the Community. We took business leaders on a number of visits, including to an apprenticeship programme that my company was running, where we targeted very disadvantaged people and helped them into work. The confidence, excitement and loyalty of these young people was extraordinary and incredibly powerful to see. I urge everyone to go on visits that will show them the power of business when it does good things.
I also applaud the introduction this year of the social mobility employer index, which ranks businesses on how open they are to accessing talent from all backgrounds and supporting all individuals within communities. We now have to learn to take the structural bias out of business so that it can be seen as a real force for good. A lot more needs to be done, and I implore the Government to think about some of these things as they develop their industrial strategy.
All companies should build a social purpose alongside their business plans. There is no point in saying that you are a company that will make money. A lot more focus should be placed on how to support start-ups. There are many extraordinary examples of start-ups in the UK, and the Government should put a lot more effort into making sure that they are successful. All investors in businesses with listed stock should now insist that the stocks they invest in have a strong moral and social purpose. No fund manager in 14 years ever asked me about social responsibility. Banks need to increase and prioritise lending to organisations that have a strong social agenda.
Once and for all, the Government need to use their purchasing power to buy their goods and services from companies that have a strong social purpose. Let us not say that we cannot do it because of the bureaucracy—we can do it. Government money should also be given to supporting start-ups and new employee ownership models. It is now too difficult to set up an employee ownership business, as the tax rules and the bureaucracy are getting tougher. It needs to be the easiest thing that we can do.
With regard to education, we need to start speaking differently at business schools. They need to explain why the business models of the future will be those with a strong social purpose. Not all business schools do that today, but they need to. Our young people need to be encouraged to set up businesses of that nature.
Of course I am going to mention diversity. Where is it? I am talking about diversity in thinking and in debate. Every business should be thinking about that. If we are serious about increasing the life chances of all individuals, diversity has to be taken seriously. The top of business does not look diverse in race, gender or disability, and that must change. It is not enough any more to have aspirational targets; we need seriously to think differently about it.
The challenges of the 21st century are too big for government or the social sector to handle alone. I think we all agree that income inequality is now at a level that has not been seen before, and we have a young generation who expect more from everybody. My children are aged 18 and 20, and they do not remember a day when the UK did not talk about austerity—they were too young. We now know that that needs to change. They also do not think that business has done a particularly great job over the past decade. We have to think about the fact that they need the opportunities we were afforded.
The Brexit conversations have not helped. Business and government need to join up to make sure that Brexit is a success. There can be no more arguments. Where is the Brexit advisory committee that will sit alongside government? All big businesses should be implored to work with the Government and show them the good things that we can do. Instead, we all argue about what we cannot do. It is time to get in a room and agree what we can do. I am very interested to hear what the Minister has to say about the ability to have a business Brexit committee for the UK, to support all employees from all backgrounds and what they need for the future.
I am positive about business in the UK—it is hugely exciting. Last year, it was said we had 5.5 million businesses in the UK. Over 99% of these are SMEs, and they are extraordinary businesses. However, it is no longer enough to be a country that regulates. We have to be a country that has passion for and belief in business success and growth. That is what helps create extraordinary futures for our young people. It did it for me, it can do it for everybody.
Lord Fraser of Corriegarth (Con)
My Lords, I thank my noble friend Lord Leigh of Hurley for the opportunity to discuss his carefully worded Motion. I feel that recent political events—in particular the wit and wisdom of the sage of Glastonbury, otherwise known as Jeremy Corbyn—have rather blindsided people like me, who not only believe in capitalism and democracy but who thought that the wars of the 20th century between open society and command economies had long since been won by the former, and the arguments put to bed. Any child of the 1960s will have vivid memories of the narrow escape we had from, on the one hand, rampant populism and, on the other hand, communism. It is therefore with a considerable feeling of surprise that I find myself having to propagate the advantages of a system whose benefits I had thought were self-evident.
I am taking the terms of reference of the debate as alluding to the private sector. The primary issue that arises in defending the private sector is the question of profit. Private or non-state companies were originally set up to make profits. To some extent, the goods produced for public consumption were seen as incidental to the overriding need to make a profit. State organisations, on the other hand, were set up to provide a specific benefit: for example, the National Health Service, the legal system and a free education. It was then up to government, local or national, to provide the money to pay for this good. Normally, one would not go back to first principles in describing all this, but recent events make it worthwhile reminding oneself of the basis of the distinction.
So we need money to pay for the National Health Service, education, the legal structure, the Armed Forces and, increasingly, the benefit system. Where does this money come from? Taxation. Of course employees of the state also pay tax, but the main funding of tax comes, directly and indirectly, from business. Business, therefore, is the sector that makes the cake, the division of which is the source of so much argument and friction. Without profits and dividends there would eventually be no cake.
By virtue of its requirement to make profits, business is the best method of allocating resources. Many mistakes are made in this allocation process, but it is difficult to see where innovation is going to arise if not through business investment. There are exceptions—military invention is one—but the uses to which business innovation is put tend to be benign, while internet hacking, malware and interference with computer programmes bear all the hallmarks of state or military activity.
Closely allied with investment is research and development. Without money or profits, it is not feasible to engage in R&D. The vast majority of this activity occurs in private business and is geared to the convenience of, or better services for, consumers. In terms of benefits to mankind, new drugs and biotechnology—in short, medical innovation—contribute the most.
Business also provides an important social function. People like to get out of the house, to mingle, sometimes to go abroad, and certainly to meet others of widely differing social and intellectual interests. That is what Dr Johnson was referring to when he said:
“A man is seldom more innocently employed than when he is making money”.
The social benefits of the existence of a business culture are legion.
Commerce, when properly regulated, brings enormous benefits to particular geographical areas. The advent of Nokia, for example, transformed Finland. Where would Australia be but for the exploitation of its mineral assets? This may be compared to Bangladesh, whose minerals, particularly oil assets, are regarded as national treasures and never to be touched. On a more humdrum level, commercial activity—be it merely the village pub—fulfils an important social function.
The next benefit I wish to mention is the spreading of wealth. Between 1939 and 1979, tax rates were confiscatory. This suited both the far left, for obvious reasons, and the far right because it became impossible by legal means to improve your social status, thus certain people who owned land or good property or yachts were in an unassailable position. The lowering of tax rates by the Thatcher Government of the 1980s spread wealth both by freeing so-called animal spirits, allowing people to take risks with a reasonable chance of reward, and by allowing business to invest with a decent chance of success. The result was not only a huge rise in prosperity but a major spreading of wealth, at the top—as catalogued by the Sunday Times rich list—but, much more importantly, all the way down the financial scale, allowing, for example, the purchase of labour-saving devices, TVs, cars, holidays and so on.
As I said at the beginning, I thought that all the foregoing was effectively self-evident, but it seems timely to ram home the arguments for a free capitalist society, dependent on business activity as opposed either to the North Korean dictatorship model, the Cuban command economy model or even the Venezuelan chaos and shambles model so favoured by the Leader of the Opposition.
I hope the House will forgive me for restating what many would regard as obvious but it seems that in this country there is an internal threat to our way of life and that we need to restate—at least for the benefit of those under 30 years of age—the advantages of the system that we hold dear.
Baroness Couttie (Con)
My Lords, I too add my thanks to my noble friend Lord Leigh of Hurley for bringing this debate to the Chamber today and for his speech, with which I heartily agree.
Several speakers today have rightly recognised the value that small businesses bring to the UK, both in terms of supporting the economy and supporting the communities through the jobs that they create. I saw this at first hand during my time as leader of Westminster City Council. Westminster is the most important economic area in the UK, producing nearly £56 billion of GVA each year, substantially more than the City of London. It is also a larger economy than nine European countries and yet over 80% of the businesses in Westminster employ fewer than 10 people. Therefore, during my time as leader, I made getting to know the businesses located on my patch an important part of my work. I became well aware of the multiple difficulties that particularly face small businesses.
There is no doubt that, for a variety of reasons, small businesses face challenges that cease to be issues for larger businesses. It is hard for them to win and bid for contracts with large organisations, be that from government or other businesses, and they frequently suffer from procuring bodies playing it safe and working with other large organisations. When small businesses are successful in winning a large contract with a substantial firm, the excitement and joy in the achievement is sometimes eclipsed over time as small firms all too often find themselves on the end of poor payment practices that can force them to the brink of, or even into, bankruptcy.
Small firms can find themselves in a vulnerable position when they have one large client dominating a substantial percentage of their cash flow and for whom they have had to make a significant investment. This can be abused by unscrupulous firms through either late payment of invoices or even refusing to pay the full amount owed despite no suggestion that the goods or services were not of the required standard. A minority of organisations are aware of the difficulties that smaller firms have in seeking legal redress in these circumstances in terms of time, legal costs and the cash flow implications of waiting for the legal process to complete. They use this leverage to persuade smaller firms to agree to settle these kinds of disputes, so paying less than the original contractually agreed amount.
Smaller businesses, because of their limited resources, are not in a strong position to deal with disputes as effectively as many would like to. Disputes are time-consuming and cost a business far more than the amount under dispute. Typically, for every £1 under dispute, a business incurs a wider cost of 94p. These figures represent a significant amount of inefficiently allocated resource that could otherwise be utilised by small businesses to invest, grow and boost business competitiveness.
Research by the Federation of Small Businesses shows that 70% of small businesses have experienced at least one commercial dispute over the period 2010-2015, 72% of which related to payment issues. This equates to 2.4 million small businesses suffering in this way. That 72% is made up of 42% of firms experiencing late payment and 30% experiencing non-payment such as that I have just described. The cost to smaller businesses of this type of dispute is estimated by the Federation of Small Businesses to be around £11.6 billion each year. This is a substantial figure by anyone’s judgment. There are, of course, wider costs, with the FSB suggesting that, based on European Commission research, poor payment practice leads to 50,000 business deaths a year—a figure I found so substantial and surprising that I got the FSB to double check it.
I was therefore delighted when I heard in the Queen’s Speech that legislation would be brought forward to modernise the court system through the courts Bill, which would introduce digital services to allow businesses to pursue their cases quickly, enabling them to recover debts more easily. I hope that this is a reference to the online court and that when drafted the Bill will have an eye to the kinds of disputes that smaller businesses experience and enable them to take full advantage of the new system.
If different procedures are required for disputes deemed to be of differing complexity, complexity should not be judged simply by the size of the dispute, as it is now, when deciding whether a claim is suitable for the small claims court. It is, after all, quite possible to have a dispute over a large sum where the arguments in the case are simple.
A number of other elements would need to be in place in order to give confidence to smaller businesses to use an online court system for dealing with payment or other contractual problems. Any fees need to be affordable and simple. I would like to see a single fee at the start of the process rather than differing fees for different aspects of the process, as currently exists in the civil courts system.
Judgments need to be fully integrated into an enforcement regime that gives a strict timetable for payment, with real teeth to ensure compliance. I would also like to see judges empowered to impose substantial fines on firms which have behaved vexatiously and sought to exploit their dominant position to, for example, force businesses to accept a lower payment than contractually agreed or to impose longer payment terms on them. This will place all businesses, big or small, under the same financial imperative to avoid these types of dispute.
Alongside these changes needs to be a comprehensive information campaign so that businesses fully understand the courses open to them should they be unfortunate enough to find themselves in a dispute. At the moment smaller businesses are not fully cognisant of their options and those which have had some experience of the current procedures are sometimes unimpressed, particularly in relation to ADR where experiences differ widely across the country.
All of us in this Chamber recognise that small businesses are the backbone of our economy and we quite rightly wish to do all we can to ensure the best possible operating environment for them to help them thrive. Modernising the courts system as proposed will be important for everyone who uses the court system but it is smaller businesses that could benefit most from the proposals if they are developed correctly,
Baroness Greengross (CB)
My Lords, when I first came into this House I was asked by the then chief executive of Business in the Community to try to encourage Members of Parliament to engage more locally with businesses that were actively benefiting society both in the constituencies where they worked and more widely. I declare an interest because I still co-chair the All-Party Group on Corporate Responsibility. We know that in this country there are many responsible and dedicated businesses that flourish in constituencies across the country. In 2015 we decided we would like to introduce the responsible business champions scheme, supported now by National Grid, because we wanted to build better recognition, inside and outside Parliament, of the immense force for good in our communities that so many UK companies present. In particular we wanted to encourage Members of Parliament to look closely at the overall impact local companies are having in each constituency.
Each year we invite Members of Parliament to nominate a local company of their choice as their responsible business champion. This accolade goes to them because of the outstanding contribution they make to their constituency. We have a parliamentary judging panel, which chooses a single national responsible business champion from among the companies that MPs nominate. A representative of every company nominated by an MP attends an annual reception we hold for them. We were lucky to have the Speaker for the first year of this scheme, which has gone from strength to strength since 2015, with the number of nominations from MPs doubling every year. I hope this will continue until most MPs select a constituency champion.
Our first two national champions—London City Airport and a small company, Alun Griffiths (Contractors) Ltd—could hardly be more different, but they share an important commitment to their workforce and local communities. London City Airport was nominated by Stephen Timms MP, a former Corporate Responsibility Minister. It was an exemplar of corporate responsibility and he cited its investment in the local community, its commitment to providing pathways into work for unemployed residents, its work with schools and universities, and its work with West Ham United Football Club to promote healthy lifestyles.
David Davies MP nominated Alun Griffiths (Contractors) Ltd, telling us that “fairness, inclusion and respect” were central to its business approach. This was borne out by the facts we were given about its working practices, relationships with suppliers and the strong support it gave to its local community. It stood out because of the support for equality and diversity it has demonstrated, particularly its support for older workers, which we especially wanted to encourage and celebrate last year.
Scores of companies have been nominated by their MPs since the award was introduced. There is not time to tell noble Lords about more than a handful, but a few might interest you. We heard about the fantastic work being done on inclusion by Marks & Spencer in Basingstoke from Maria Miller MP, and on apprentices and training by Manchester Airports Group from Mike Kane MP. Last year the judges were very pleased that two very small companies deserved to be included on our award shortlist. We admired the way that Kelvin Hair, nominated by Patrick Grady MP, and West & Coe Funeral Directors Ltd, nominated by Jon Cruddas MP, support their local communities so strongly. West & Coe—Dagenham’s oldest business—provides not just a counselling and befriending service, but generous support for local sporting activities, the Queen’s theatre in Hornchurch and the local hospice. Patrick Grady praised Kelvin Hair’s “excellent contribution” to the local community, its commitment to fair working practices and the support it gives to training and other local SMEs.
In 2016 the judges commended highly Port of Blyth, nominated for a second year by Ronnie Campbell MP, which plays a fundamental role in the local community. Anglian Water—nominated by my co-chair on the All-Party Group, Jonathan Djanogly—is known to us all as a leader in the fields of workplace health and well-being, and for the sustainable business practice it offers. Xiros Ltd, nominated by Greg Mulholland MP, is another outstanding company. Anglian Water has now emerged as BITC’s company of the year. The judges also commended the deep social investment in the local community made by Canary Wharf Group. Jim Fitzpatrick MP was eloquent in drawing our attention to the efforts it has made to ensure that its developments open the widest possible economic opportunity to people living in the surrounding areas, and its transformative work extending education and employment opportunities in its local area.
Canary Wharf Group was unlucky not to win our national award last year and the same could be said for Zurich Insurance, nominated by the Swindon MPs, Robert Buckland and Justin Tomlinson. This is clearly an excellent company as well. Not only is it very supportive of its local community, but the judges were impressed by its commitment to promoting a healthy workplace and encouraging diversity and equality.
This year our responsible business champions scheme was disrupted by the general election, but we have since relaunched it, writing to all the newly elected MPs encouraging them to nominate a constituency responsible business champion. This year we have tweaked the criteria for our national award to favour those companies that are doing their bit to help the UK reach the Government’s target of halving the disability employment gap. I am confident that we will once again receive inspiring nominations telling us about the fantastic work on inclusion that companies across the country are doing. I look forward to celebrating that with them at our responsible business champions reception in November.
Lord Popat (Con)
My Lords, I too thank my noble friend Lord Leigh for initiating this important and timely debate. Since the financial crisis, businesses have operated under a cloud of scepticism. As the search for someone to blame has grown, profit has become a dirty word, risk has become something to be avoided and the private sector has retreated into its shell.
As my noble friend Lord Leigh rightly pointed out, businesses are an unrivalled force for good. They create millions of jobs; they generate billions in tax revenues that pay for welfare and the NHS; they innovate and produce life-changing products; and they sponsor countless good causes with corporate and community responsibility. Having been an SME myself, I know that Britain’s businesses are the greatest ally we have for the challenges we face.
It is time for our entrepreneurs, innovators and executives to pick themselves up off the mat and start fighting their corner. We should not be shy about making the case for what businesses have achieved and can achieve in this country, and we should not be ashamed of the values of hard work and aspiration.
We speak of the priorities of businesses far too infrequently in this House. We cover topics such as public services, international development and the economy more broadly on a regular basis, but supporting and understanding businesses is often overlooked. I hope we can begin to correct that, because we will need them, not only post Brexit but if we are going to overcome the economic hurdles that lie ahead of us.
We should be absolutely clear that, since 2010, tremendous strides have been taken to make Britain a more business-friendly country and our economic record is hugely impressive: a higher minimum wage for the low paid; record levels of employment, with more or less full employment; controlled levels of inflation; lower interest rates; lower capital gains tax, with higher revenues received; and, until recently, the highest level of economic growth of any country in the G7.
But we should also be very clear about the challenges that face us. The economic climate we find ourselves in is undoubtedly one of the most challenging scenarios this country has faced in recent history. The origins are long-standing for most of these issues and have been neglected by Labour and Conservative Governments. For nearly 30 years, there has been too much public sector borrowing. Our debt is terrifyingly high, and too many politicians lack the will to tackle it.
As my noble friend Lady Neville-Rolfe rightly said, we have had too little investment in infrastructure, housing and research. There has been too much reliance on the City and service industries, and too much regulation, taxation and compliance. That has not often been understood by politicians. There has not been enough reform of education or enough exporting to high-growth economies. Our balance of payments deficit has been a constant for the past four decades. This year, we will end up with a trade deficit of some £50 billion, which shows that we do not export enough to pay for imports.
We have a major productivity problem. It takes workers in France and Germany four days to produce what we do in five. Either we are not working hard enough, or we are not investing enough in new technologies. In addition, we have a terrible planning system. Quite simply, we continue to fail to create the environment needed for SMEs to grow and succeed.
We have made progress since 2010 on making the lives of those running our small businesses easier, but there is a long way to go. We need to see action, to see a Government who are bold in their support for business, who are willing to take the steps necessary to put Britain at the heart of the global economy again.
There are four main areas where we need to see drastic improvements. First, our aviation capacity is a cruel and long-running joke. We are at least 30 years behind where we should be. Through political dithering, we have reached a stage where our main airports are full, and our USP as a hub destination is being eroded. New airports are being built around the world that start with four runways; we are unable to add a third to one of the world’s busiest airports. Post Brexit, if we are to be an outward-looking country that exports to the world, we need to be able to fly to our key markets. Let us crack on and build the third runway at Heathrow and the second at Gatwick; we cannot keep kicking the can down the road.
The second area is communications at home. Our mobile phone reception is poor. High-speed broadband rollout is too slow. Road and rail systems are too slow and too full. The Government are trying, but we need to be bolder, faster and more aggressive.
Thirdly, we need to build better links with emerging markets, in particular Africa. As the Prime Minister’s trade envoy to Rwanda and Uganda, the country of my birth, I see the trade envoy programme as a strong addition to our diplomatic arsenal, bridging the gap between the private and public sectors. Africa has six of the highest-growth markets in the world. Uganda is on course to be the fastest-growing economy in the world by 2025. Not long ago, our share of trade with Africa was 30%; now it is less than 4%. In fact, China has become the imperial power in Africa, in the very colony where we were a power some years ago. We need such bridges to enable us to do more trade in Africa, because it is a high-growth market. We do not see many ministerial visits there, except those relating to DfID and aid; Africa is more interested in trade. Barclays Bank, which has been in Africa for 100 years, is soon to sell out because of the way in which legislation has been passed in this Chamber. I bet that the Chinese will acquire that bank. British Airways, which used to fly to many cities in Africa, has more or less stopped flying there, because no slots are available or because it has sold its slots to the Qataris and others for a very good profit.
We need ease of doing business and a different approach to our businesses to make sure that they become successful. Infrastructure and connectivity are vital to business in the 21st century. If we want more small businesses to export, we must give them opportunities to reach emerging markets. Trade envoys and the Department for International Trade can help if we can get a business into a country, but we need help from the Department for Transport, the Foreign and Commonwealth Office and the Treasury to make that happen.
Businesses are an overwhelming force for good, but, for too many, the Government tie one hand behind their back. Our exiting the European Union gives us a fantastic opportunity to right that wrong, and to start to deliver the solutions that businesses need. Now is the time to be bold, which I hope the Government will be.
Lord Shinkwin (Con)
My Lords, I thank my noble friend Lord Leigh of Hurley for securing this debate. Our welfare state works only because of the wealth generated to pay for it, much of it by business. No wealth generation equals no welfare state. It is as simple as that. Wealth generation sustains the welfare state.
My career in the charity sector gave me the privilege of working with parliamentarians of all parties and none. While it taught me respect for political difference, I cannot respect John McDonnell’s muddled Marxist mathematics, which would dig us deeper into debt and jeopardise our welfare state. Yet there is no escaping the apparent attraction for some of this Pied Piper’s tune. Who can blame some of the UK’s 11 million or so disabled people, understandably impatient with the extent of inclusion 22 years after the Disability Discrimination Act, for wanting to believe John McDonnell’s empty and patronising promises of non-existent money?
The impression given that progress can be made without nurturing enterprise and wealth generation needs urgently to be exposed for the delusional, disingenuous and dangerous narrative that it is. Business needs to help make the arguments by working in partnership with government and disabled people on accelerating progress towards inclusion over the next three years. Why three? It is because the Conservatives’ Disability Discrimination Act turns 25 in 2020. We need to give disabled people a reason to celebrate that birthday.
How can we make progress? I suggest that there are three principal ways. First, business should upgrade, rather than downgrade, disability. That means not falling for the current fad of believing that by making disability the responsibility of everyone the need for a sharp focus on disability and a nominated senior champion to drive change can be dispensed with. Experience shows that, unless you want disability to be the responsibility of no one, you need to use both approaches to make real progress.
At this point, I want to put on record how deeply touched I have been by the support I have received from across the House for my continued call for the Equality and Human Rights Commission to reverse its regressive decision to abolish the role of disability commissioner, for which I successfully applied, and instead to ensure that the disability commissioner continues to chair the commission’s disability advisory committee. Public bodies should be accountable to Parliament. Parliament needs to know why, how and when this decision was taken, given that the minutes for March, which are on the internet, clearly show that the role’s abolition was not even discussed at the commission’s last board meeting before I was appointed on 21 April.
To return to the main point of the debate, another way we can make progress is to honour as soon as possible the welcome manifesto pledge to,
“review disabled people’s access and amend regulations if necessary to improve disabled access to licensed premises, parking and housing”.
Too often, some businesses bemoan red tape as if it flowed in only one direction. As the ad hoc Select Committee’s excellent report on the Equality Act 2010 and disability showed, that is not the case. As a disabled person, sometimes I feel that I can barely move for red tape. To take a simple example, I have lost count of the number of times I have been prevented from going into a shop because of a step. It would be so easy and inexpensive to rectify in so many cases, yet too many businesses continue to cut off their nose to spite their face by treating me as if my money were disabled. Well, it is not disabled. In fact, what is known as the purple pound is worth £249 billion. To put it in context, that is more than eight times the estimated £30 billion shortfall in John McDonnell’s manifesto sums. So it is a lot of money.
My third suggestion is that together we build on existing success such as the John Lewis Partnership. Improving life chances is actually one of the benefits it uses to measure its success. It believes that this strong social purpose is good for business. I agree with my noble friend Lady McGregor-Smith that we need more of this in business.
In conclusion, my noble friend Lord Leigh of Hurley is right: resetting the narrative is crucial. My message to business is that, if you want to defend free enterprise, prosperity and your own business, you need to do more to counter by word and deed John McDonnell’s recklessly irresponsible narrative. The next three years provide a wonderful opportunity to build both a tangible, positive narrative and a record of change and inclusion. Let us be ambitious and show that together we have the will and the vision to demonstrate that businesses play a pivotal role in generating wealth and improving both the life chances and the inclusion of disabled people.
Lord Suri (Con)
My Lords, I thank my noble friend Lord Leigh of Hurley for introducing this interesting debate.
In a debate such as this, we cannot lose sight of the overall picture. The economic outlook of the country at the present time is weak. Productivity grows at a far slower pace than in other developed nations, wages remain stagnant and inflation looks set to rise gradually as we leave the European Union. I say this not to depress the mood but to set the stage for the challenges we need to confront going forward.
Watching the news, I have seen a number of commentators and people from the other place talking about how the state needs to fix these issues. They are not wrong, and I have spoken in this place many times on the need for a better technical education and research budget. But, depressingly often, the role of business is forgotten, and its obligations left by the wayside. Quite simply, if the job of the state is to turn out well-suited workers, it is the job of business to properly invest and help those workers specialise.
One serious issue with the EU was that it allowed employers to effectively dip into a large pool of underpaid and cheap reserve labour. Now that we are leaving, I hope that business leaders will see the sense in investing in workers, to create better jobs and have the productivity required for decent wage rises. I think there are plenty of sensible initiatives that have been put in place by Governments of all hues.
I encourage all businesses to get involved in sponsoring academy schools, as Cadbury and JCB do stellar work in helping to skill up youngsters. But there is real and serious anger at the business community across the country, and it is not difficult to see why. The social contract that underpins the free markets we on this side support is coming loose. We promised that all would see improvements in their lives because business could be trusted to be responsible with its cash, invest back in the workforce, and seek to be sustainable in how it acted. Since then, we have seen lower investment than the European average, lower productivity growth, and the general feeling that businesses are not integrated into the communities they operate within. The way to shake this off is to reach out and show all sections of society that business is making an active effort to change.
As my noble friends Lady McGregor-Smith and Lord Shinkwin said earlier, it is indeed praiseworthy that employee-owned businesses are increasingly important to the UK economy and society. The John Lewis Partnership model is a prime example of this. As a general rule, I prefer initiatives to be led by the group in question rather than by the heavy hand of state intervention. So I am pleased to see more companies reporting their gender pay gaps with less prodding from the state—although I will support action when necessary. It would be positive to see more reporting of ethnic pay gaps, which I think are underreported but no less problematic than gender pay gaps. I am sure that the Minister will have something to say on that. The aim should be to utterly stamp out all inequities in wages as soon as possible, and then lock in legislation to stop any slippage.
Many companies also take positive steps to reach out to underprivileged communities, and take on people to act as role models. This is excellent and to be encouraged at all times, and I am aware that the Civil Service has been a real trailblazer with its Early Diversity Internship Programme.
Baroness Rock (Con)
My Lords, I, too, add my thanks to my noble friend Lord Leigh of Hurley for a very interesting and informative debate. We have heard many esteemed contributions as to how businesses can improve life chances and take responsibility for their own contribution to the communities in which they operate. I will focus on just two areas. The first is education and skills. Just as businesses must make a fair contribution to local infrastructure, so too must they contribute to the skills pipeline they rely on to get the right people to drive their business forward. Here we see a recurring theme. It is not enough for significant local employers to simply pay their corporation tax; they need to become more actively involved in the community.
Through the academy sponsorship programme, many are doing so. Take BAE Systems and the Furness Academy in Cumbria. BAE is the most significant employer in the region. What better way to demonstrate its commitment to the community than by sponsoring the local school—which, before BAE’s intervention and support, was failing? Or Siemens and Lincoln UTC, which specialises in engineering. Of course, Siemens could simply have relied solely on the state to deliver the school leavers it needs. Instead, it took responsibility, showed leadership and ultimately gave something back.
The other area I will focus on is perhaps more complex—that of technology. I applaud the noble Baroness, Lady Lane-Fox, for her profound speech and for her praise of Brent Hoberman and his outstanding Founders Factory. It is a fantastic organisation. I am proud of this Government’s record on fostering innovation through supporting start-ups, encouraging investment from angel investors and venture capital, and helping those businesses grow. The technology that emerges from these businesses has the power to improve life chances and foster prosperity.
Take fintech. By using apps or mobile banking, new providers can reach the financially excluded and the unbanked through advanced approaches to credit scoring and expanded networks that go beyond branches. This benefits the least well-off and helps them transition from being excluded from accessing mainstream products. Or take crowdfunding and the opportunities it continues to bring to small businesses to help them access finance to grow when they may have been turned down by high street lenders. But technology, as well as having the power to spread prosperity, also has the power to be hugely disruptive to communities, as old industries and jobs are swept aside by innovation. Here we must hope that our public policy can keep pace with technological change.
Take artificial intelligence. I find myself hugely honoured and excited to be a member of the ad hoc Select Committee on Artificial Intelligence. It is clear that on the one hand we need to capitalise on the opportunities that AI can bring. The Industrial Strategy Challenge Fund aims to bring together business with research to meet six of the industrial and societal challenges of our time. One of the six is robotics and AI. Accenture has estimated that AI could add in the region of £654 billion to the UK economy by 2035, and the Government are providing further support with the commissioning of an AI review led by Wendy Hall and Jérôme Pesenti, as well as a funding boost of £17.3 million from the Engineering and Physical Sciences Research Council to support the development of this technology in universities. This is the right approach, but we must use at least some of the economic dividend to ensure that those who become economically displaced by new technology have the chance to retrain so they can continue to contribute.
I have spoken in this House before about how technology has historically created more jobs in new sectors than those that have been lost in old ones. Indeed, a Deloitte report we debated here found that the number of technology managers had increased by a factor of 6.5 in the last 35 years to more than 300,000, and the number of programmers had increased threefold to just under 300,000. But we need so-called “skills activism” to make sure that all continue to benefit and that the life chances of those who work in these new technology-driven industries do not come at the expense of those they might be displacing.
To reiterate what my noble friend Lord Leigh said, business is quite often better placed to spread prosperity than government, through job creation and, in the examples I have mentioned, to foster the innovation and technology that can directly improve life chances. But such businesses must recognise that they do not do this in a vacuum. Just as they must contribute to the public policy that supplies their labour force, so they must also come to realise that it is for them as much as it is for government to support the workers and communities their activities may be displacing. That would truly represent business taking responsibility for improving life chances and fostering strong communities.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the noble Lord, Lord Leigh, for recognising the place that businesses, in particular small and medium-sized enterprises, play in the success of the economy. He was absolutely right to draw attention to this and we all recognise his successful business career, which adds to the lustre of this House. But recognising the contribution made by SMEs is not the same as helping them to maintain their place and to achieve more in order to help both themselves and the country. Our nation’s prospects depend in no small part on the strength of our small businesses. My question for the Minister is this: do the Government really listen to the concerns of small and medium-sized enterprises?
I was pleased to hear the words of the noble Baroness, Lady Neville-Rolfe, who sent a nod of appreciation for what small businesses do and acknowledged the non-appreciation by Governments of all colours, although I am not sure that I need to go as far back in history as the Long Parliament of 1640 to decide on the policies of the present Government. As the noble Baroness pointed out, sometimes it is about embracing the novel idea of asking small businesses what they actually want. I do not think Governments do—I spend my life advising small businesses—and I do not think that we ask the right questions. What small business wants most of all is certainty. Business wants to know what is going to happen next week, next month and next year. At present, with the prospect of Brexit in one form or another, the uncertainty is worrying many small and indeed large businesses.
The noble Lord, Lord Leigh, talked about there not being government spending because business is better at it than the state, something we have just heard about again. But my analysis is that it should be about a combination of the two. Neither one is either good or bad; it is about the combination. Too often both in local and in national government we talk about market forces. Market forces are fine, but they are not the be-all and end-all. In local government, which has been referred to in the debate, we have a situation where outsourcing has become almost the norm, but it does not necessarily deliver benefits for the local community or indeed for the business of a local authority.
The noble Lord, Lord Leigh, mentioned that Goldman Sachs had given a donation to the remain campaign, so obviously it supports staying in the European Union. I have a great deal of respect for Goldman Sachs and what it knows about business. Unhappily, events may show that its advice was right. The noble Lord, Lord Leigh, went on to mention many other things, most of which I agree with. Apprentice schemes are the right way to go, and education has been mentioned by other noble Lords. Really, it should not be just university or just apprentice schemes. There should be the right course for the right people, which business can take advantage of.
My noble friend Lord Shipley spoke about starting up business and about start-up allowances. One of the policies in the Liberal Democrat manifesto, which sadly we are not in a position to implement, was these start-up allowances. When you go to start up a business your main worry—as we heard from the noble Baroness, Lady Lane-Fox—is how you pay the rent that week or keep your house together. One suggestion is that a sum of, say, £100 per week for six months could be available for those who have the temerity or experience to go and start up their new business. When you start up a business, as I did at one stage, there is no money coming in. We need to do something to appeal to those entrepreneurs.
I use the word “entrepreneurs”. The noble Lord, Lord Leigh, mentioned that we have entrepreneurial relief. We also have entrepreneurial visas. During the general election, I was on a panel with small businesses for a successful debate. Someone from the audience who had an American accent said she had come over here on the entrepreneur’s visa. She had—and still has—a successful business but was having extreme difficulty in renewing that entrepreneur’s visa. That needs to be looked at.
The noble Lord, Lord Leigh, spoke about aggressive tax planning. I believe the Government are beginning to look towards those people who set up such schemes as being culpable, as well as those who use them.
We also spoke about community activity and the difficulty for small companies in doing that. It is all very well to talk about community activity, but if you are just on your own or with two or three people—perhaps even up to 50 people—you might want to digress from your actual business to do community activity but you do not have a department set up for it. We must find ways to bridge that gap.
Plastic bags were used as a great example of success. Indeed that was successful but it is strange that the Government have not looked beyond the large companies. If you go into any smaller supermarket, grocer’s or whatever, they load you with plastic bags. You say, “No, I don’t want them”.
The noble Baroness, Lady Dean, raised another aspect in this debate. When we talk about business, small or large, the building of homes is one such business. It is there, employs people and helps the community in all ways. The ability of housing associations to contribute to that is to be admired. She also talked about education, as did the noble Baroness, Lady Rock. If we are talking about small business, we need an educated workforce that knows how to do business in any way. We have not managed that. My noble friend Lord Shipley spoke about social benefits being higher up the agenda. The Government need to promote that.
My noble friend also spoke on a matter I raised in 2015, 2016 and 2017 in your Lordships’ House: the legislation passed in the 2015 Budget insisting that all companies do quarterly digital tax returns. That in fact means they must do five tax returns, as they do an annual return, too. I link that to what the noble Baroness, Lady Lane-Fox, spoke about so ably: the digital economy. Many of those small business people do not have the ability to do these returns. I speak as an accountant; they will employ outside accountants to do five digital tax returns a year. This is an imposition on those businesses, one that cannot be for the benefit of those businesses, the country or the economy. The other side of that coin is what the noble Baroness, Lady Lane-Fox, spoke about: the lack of skills in business. The digital economy is the way forward. It is no longer a niche but is a big industry, whether that is cyber or any other aspect of the digital economy. That needs to be pursued.
The noble Baroness, Lady Bloomfield, quoted Maimonides. When I walk past his statue in the square in Córdoba, I will think of her words in your Lordships’ House. That brings me to some other quick points. Export is the life-blood of this country. Do the SMEs have the expertise to contribute to that? How much more expertise will they need with a hard or even soft Brexit, when we find ourselves outside the single market and customs union? What are the Government doing to help SMEs through this maze of world trading tariffs and the new experiences of export guarantees and tackling EU regulations from outside? Big businesses will find that a problem; small businesses will find it an insuperable barrier. That will be even more critical post Brexit, when we depend more on a competitive domestic economy.
Then there is another aspect of Brexit: freedom of movement. Skills are needed, very often from outside these shores. We worry that those skills will be turned off. The noble Baroness, Lady Lane-Fox, cited the problems in the digital economy. That is a good example of those skills we need. One-fifth of small and medium-sized enterprises have EU citizens on their staff. There is also a great need to help the retention of international students in this country. Not much has been made of this but there is also a great need for the British Business Bank and access to it by small businesses. On corporation tax, we need to look not so much at reducing or increasing the rate by 1% or 2% but at having a rate for smaller businesses so that they can earn up to a level at a smaller rate of corporation tax and know the certainty of what is happening.
Finally, I hope the Government will look at a systemic review of the business rate system. At the moment, particularly on our high streets in London with which I am most familiar, small shops will be required to pay usurious business rates which will mean their closure and the opening of more charity shops, bookmakers—I should say turf accountants—and office premises. Their business is taken up by the warehouses opening on industrial sites which pay business rates at a far lower level. We need a systemic review of that. Once again, I thank the noble Lord, Lord Leigh, for initiating this debate.
Lord Tunnicliffe (Lab)
My Lords, I also thank the noble Lord, Lord Leigh, for initiating this debate. Indeed, I read the terms of the Motion and thought that this would be a bit of a love-in because it is essentially a statement of motherhood—do not get me wrong; I am in favour of motherhood—with which I and my party entirely agree. I enjoyed his speech. His critique of the worst of big, private business would have rocked the House had I made it, though his statements were all entirely accurate. The worst of big business is not very nice.
Underneath some ripples on the surface, there was quite a lot of consensus today. Many noble Lords seemed to be saying that business is the centre of our society et cetera. Nobody would disagree that you must create wealth to have welfare. That was very good. However, there was also a current that many businesses could do more to be more socially responsible and to have this concept of more stakeholders than just the profit stakeholder. There was also a bit of consensus that from SMEs you tend to get, perhaps through the business forces on them, better behaviour in terms of the breadth of the benefits and so on. Their natural behaviour is to spread their impact across society.
I want to be clear—as John McDonnell’s representative here on earth—that the Labour Party is in favour of successful business. I thought it was great that the noble Lord, Lord Leigh, put the Conservative Party manifesto in perspective when it came to business. I recommend that the noble Lord, Lord Fraser, look at our manifesto on business. It is a business-friendly and SME-friendly manifesto. I will now speak briefly on SMEs, because I agree with the noble Lord, Lord Palmer—indeed, I found myself agreeing with much of what he said; I am having an uncomfortable day.
Small businesses are very much at the heart of economic growth and innovation. Beyond economics, SMEs add vibrancy to our daily lives, knit local communities together and provide fulfilling work for millions of people and improve their lives. Particularly as we approach Brexit, it is vital that the Government do more to support small businesses and create an environment in which they can flourish.
Small businesses face a number of problems. The noble Lord, Lord Shipley, and the noble Baroness, Lady Couttie, mentioned late payment and supply chain bullying. The noble Baroness gave one or two examples, as will I. The Groceries Code Adjudicator last month described suppliers as feeling,
“in a constant state of jeopardy”,
while a recent survey by MarketInvoice found that five major businesses—John Lewis, Alliance Boots, Home Retail Group, Marks & Spencer and Kingfisher—paid 83% of their bills late. The new payment practice and reporting regulations are a welcome step but lack rigour in both their reporting requirements and the resources available to identify and take action against wrongdoers. Will the Minister clarify what the Government are doing to measure the success of their approach or must we depend on third-party surveys and anecdotes to judge their progress?
It was good to hear from the noble Baroness, Lady Neville-Rolfe—I missed her contribution to the Queen’s Speech—about her concern that all the good stuff she had done was not happening. We concur. We want to know how rapidly those measures will happen. We are particularly concerned about the Small Business Commissioner and their limited scope and resources. In Australia the model is to have a small business commissioner in every state and at the federal level. Their scope and flexibility help ensure strong support from the business community. The UK Government’s plans fall short on all these elements. Will the Minister provide an update on the recruitment of the Small Business Commissioner and their staff and when activities will begin?
SMEs play a crucial role in the development of new products, services and technologies. Investment in R&D—which, once again if you read our manifesto, we strongly support—is key to our future growth and never more so than in our current context. It is therefore concerning that the OBR showed a fall in business investment in 2016 and forecast a further fall in the future. Connecting SMEs to our world-class research base is more important than ever. In that respect, UK Research and Innovation and Innovate UK must assume greater significance in the years to come. We have a deep-seated productivity problem; boosting the capacity of business to engage in R&D will be central to overcoming that trend.
I agree that the complications of Brexit will be particularly difficult for SMEs. It is important that SMEs, particularly those that depend on exports to the EU, are not stifled in their activities. We are already seeing signs that many are holding off investment and plans for exports due to the current climate of uncertainty. Will the Minister clarify whether the Government are encouraging SMEs to continue with plans for exporting to the EU, and what support they are providing in this area?
A proper industrial strategy will be central to ensuring that business continues to thrive in the modern economy. I was struck by the Social Mobility Commission’s recent finding that:
“At current rates of progress, the Government’s ambition to create a high skill, high wage economy will never be met”.
Does the Minister agree with the commission’s suggestion that the Government’s industrial strategy should recognise the role of social mobility in increasing the UK’s competitiveness?
In order to flourish, businesses need a highly skilled workforce equipped to meet the challenges of tomorrow. For too long vocational education has been undermined. The UK ranks 16th out of 20 developed economies when it comes to how many people have a technical education. While we welcome the Government’s intention to simplify the process, it is more important to raise standards in the delivery and prestige of technical education, and drive up the quality and esteem of apprenticeships. Will the Minister clarify when the proposed T-levels will be introduced, and what consultation with business the Government are carrying out for their introduction? Will he also say what the Government are doing to prepare SMEs for the apprenticeships levy and encourage SMEs to make use of the financial support available for taking on young apprentices?
The gig economy is a worry. It is changing the way that many people work. The impact of technology and the gig economy is transforming many industries and the very nature of work itself. New platform technologies bring many benefits, as the noble Baroness said, but also many challenges, particularly for SMEs seeking to compete with large companies which in some cases fail to provide basic employment rights. In the new economy we must ensure not only fair treatment of workers but fair competition.
Finally, I will say a word or two about connectivity in the digital economy, which is so important to SMEs, through their role in delivering crucial infrastructure and the millions of SMEs making the most of opportunities that enhanced connectivity brings. It is concerning that half a million SMEs still do not have access to superfast broadband and are unable to participate fully in our digital economy. The UK has slipped down the EU rankings for broadband connectivity in recent years, and we are one of only three EU countries that have not matched the EU’s target of 30-megabit broadband for all by 2020 and at least 50% take-up of 100-megabit broadband. We need a far more ambitious approach to connectivity, particularly for our SMEs to prosper.
Earlier today the noble Lord, Lord Bates, accused me of being a pessimist. I am not usually a pessimist but I am afraid that I am becoming one. I do not think the country is in a very good way. A lot of recent trends are really quite worrying. But I make it absolutely clear that the Labour Party sees responsible business in partnership with government as a central plank of any positive future. We see the flourishing of SMEs as particularly important in this. We especially want to know how the help that SMEs deserve will be delivered by this Government.
Viscount Younger of Leckie (Con)
My Lords, I congratulate my noble friend Lord Leigh on securing this debate. I appreciated his thoughtful remarks and agreed with a very large part of his speech. The House has benefited from some passionate speeches from several distinguished business leaders and leaders of important institutions in the UK.
I agree with the noble Lord, Lord Tunnicliffe, that there is a consensus in the House on the importance of businesses, small firms in particular, because of their influence on the economy and broader prosperity. They are indeed the wealth creators. As my noble friend Lord Fraser said, their taxes fund our public services. They are the employers who create opportunities for a fulfilling career. They are the beating heart of the UK economy, and we should be doing all we can to ensure that they grow and prosper.
We start from a strong position. The figures are impressive, as my noble friend Lord Popat said. There were a record 5.5 million private sector businesses at the start of 2016, as was mentioned by the noble Lord, Lord Shipley. This is an increase of 97,000 since 2015 and 1,015,000 net new businesses since 2010. Employment is also at a record high, with 372,000 net new jobs created in the past year, bringing the total to just under 32 million people in work. In fact the employment rate, at 74.8%, is the highest since 1971.
My noble friend Lord Popat commented on productivity. He was fairly blunt—he said we have a major productivity problem and made some comparisons with Germany. Let us be clear that this is certainly a challenge. It is not really clear why the UK’s performance has been so poor. Economists refer to the productivity puzzle. It is not a puzzle we will solve today. Technical skills, investment and entrepreneurship all play a part. However, we can identify one factor: productivity is the value-added per hour worked, and since we now have the highest-ever number of people in employment, some of those marginal jobs add less value and bring down the average. Countries with higher taxes and less flexible labour markets have higher productivity at the cost of lower employment. This is the trade-off which we should bear in mind. These are important issues that we are strongly seeking to tackle.
Entrepreneurs create wealth. As my noble friend Lady McGregor-Smith said, the Government’s role is to put in place the best possible environment in which to start and grow a business together with a tax system that ensures the benefits are shared fairly. Several noble Lords spoke about the importance of universities and social enterprises, notably the noble Baroness, Lady Dean, and the noble Lord, Lord Shipley. I agree with those who have urged us to consider all businesses. We have heard about the importance of universities and social enterprises, employee-owned businesses and housing associations. All these have an important role to play; they are very much part of the Government’s vision and will be included in the industrial strategy, which answers the question asked by the noble Lord, Lord Tunnicliffe.
Let me mention some of the actions on tax that the Government have taken since 2010. We have reduced the rate of corporation tax from 28% to 19% and plan to reduce it to 17% by 2020, benefiting 1 million companies. We have cut income tax bills for 31 million people by raising the personal allowance to £11,500 and have plans to raise it further to £12,500 by 2020. We have introduced the employment allowance, giving 1 million employers up to £3,000 off their national insurance contributions bill. We have introduced a national living wage of £7.50 per hour for all employees aged over 25 and we have extended small business rate relief, which means that 600,000 small businesses no longer pay business rates.
The noble Lord, Lord Shipley and my noble friend Lady Neville-Rolfe looked at business rates and the advantages of going online. They are right, but they will recall that at Budget 2016 the Government announced cuts to business rates worth some £9 billion over the following five years. These reductions go some way to redress the balance since the benefits are felt by businesses on the high street rather than those operating solely online. However, the Government are actively considering what further steps they could take without seeking to penalise successful online businesses and their contribution.
Some have suggested that these cuts in corporate taxes go too far. They may be interested in a recent analysis by accountancy firm PricewaterhouseCoopers of 100 large companies which between them collect or contribute 13% of all government tax receipts. In 2016, the year in which corporation tax was cut to its lowest-ever level of 19%, receipts from this tax increased by 9.2%, so low tax rates help competitiveness, improve confidence and can lead to increased resources for our public services.
My noble friend Lord Popat spoke about issues involved in setting up a business. He said that sometimes it feels as if one’s hands are tied behind one’s back and questioned whether the business environment is supportive and competitive. It is worth noting that the World Bank ranks the UK seventh in the world for ease of doing business, ahead of Germany, France, Japan and the United States. Of course, we should not be complacent. There is much more to be done, but it is worth putting a bit of balance to his statistics.
The Government have a role in fostering innovation, enabling the growth of emerging businesses that are pioneering new technologies and new business models. These new businesses raise productivity, offer high-quality jobs and boost UK export opportunities. For example, the UK has one of the largest aerospace industries in the world and has pioneered new technology for modern satellites. The Space Industry Bill, which was announced in the gracious Speech, will enable the licensing of commercial spaceflight, including rockets, space planes, satellite operation, spaceports and other technologies. British businesses are at the forefront of this so-called rocket science.
In her passionate speech, the noble Baroness, Lady Lane-Fox, spoke about digital skills and encouraging technical and digital skills in terms of signing a new digital ethical charter. At the same time as our tech sector is thriving, with London confirmed as the number one destination for tech investment in the EU, too many businesses lack the skills they need. We engage with business organisations regularly on these issues, as I am sure the noble Baroness is aware, but I am grateful to her for her personal commitment and her actions to ensure that the benefits of the technology are accessible to all.
The noble Baroness, Lady Lane-Fox, spent some time in her speech focusing on the value of digital skills. The noble Lords, Lord Tunnicliffe and Lord Palmer, also spoke on this subject. The noble Baroness is right that small businesses and the self-employed are missing out on business opportunities and achieve lower productivity because too many of them lack these skills. This issue needs to be tackled around the country, particularly where small businesses operate. The Government have supported and invested in the creation of a network of growth hubs to provide businesses across England with tailored advice and support at local level. There are now 39 growth hubs, one in each local enterprise partnership area, providing much-needed access to impartial and co-ordinated business support to 100% of the registered business population in England. Growth hubs provided intensive support to 47,618 businesses, including in digital skills. The Government will continue to focus on this important issue, working with growth hubs and the technology sector.
We should also not forget the social benefits to communities and public services that flow from innovation. Technology is supporting our social care system, for example, by helping older people remain independent in their homes for longer, and the UK’s growing education technology sector is supporting children to achieve in the classroom. The UK’s world-leading research base is a vital part of these success stories, including universities, Innovate UK and the network of catapults that bring together innovative businesses and accelerate the development of new products and processes.
That gives me an opportunity to praise the noble Baroness, Lady Dean, for bringing up universities, particularly the University of Nottingham. I congratulate the university on its gold award. Universities are businesses that have a vital supportive role in this country, not least in employment and in focusing on the needs of students.
Equally important is access to finance across the country, catalysing growth and private sector investment. The British Business Bank in particular, which several noble Lords mentioned, is core to our ambitions to ensure that all businesses can secure the right finance at the right time to achieve their goals. The bank invests alongside the private sector through guarantees and co-funding. The Start Up Loans company, a division of the bank, has already helped more than 44,500 entrepreneurs to realise their goals by lending more than £284 million, and the bank’s programmes have enabled £3.4 billion of finance to more than 54,000 established businesses. Last autumn, the Government provided £400 million of new funding for the bank’s venture capital programme, which will unlock a total of £1 billion of investment into innovative firms. The bank is ensuring that equity funding is available to businesses in all parts of the UK. The £400 million Northern Powerhouse Investment Fund is already active and the £250 million Midlands Engine Investment Fund is expected to launch shortly.
I have outlined the role of government, but I want briefly to acknowledge the important point that my noble friend Lord Leigh alluded to about creating a balance. That balance is important in terms of having necessary taxes imposed on business but not to the extent that its behaviour becomes detrimental to wealth creation. I could say more about that, but it is an important point to make as part of this debate. What should we expect of businesses themselves, particularly those larger companies whose actions shape public opinion? In a word, we expect them to act responsibly: this is definitely a theme that has come out during this debate. In thanking my noble friend Lord Shinkwin for his contribution, I note the importance of business’s role in supporting people with disabilities. I reassure him that, in developing our industrial strategy, we have already met representatives of Disability Rights UK, which responded to the strategy consultation. Responsible businesses ensure that they pay their fair share of tax, treat their employees with respect and pay their suppliers on time.
There has been a strong emphasis today on social responsibility, but there is also moral responsibility and I will move on to the issue of prompt payment, raised by my noble friend Lady Couttie. As she reminded us, late payment is a pressing issue that disproportionately affects small businesses. The noble Lord, Lord Shipley, raised this, as did my noble friend Lady Neville-Rolfe. I am delighted that she contributed again today. She brings back to these Benches, from the Front Bench, huge business experience and a wealth of success from her ministerial responsibilities. The Government are tackling late-payment culture through a package of measures, including requiring large businesses to report on their payment practices and performance; creating the prompt payment code; and appointing a Small Business Commissioner. I reassure my noble friend and the noble Lord, Lord Tunnicliffe, that the recruitment of the Small Business Commissioner is well under way and I am assured that the commissioner will be appointed later this year.
Greater transparency will enable suppliers to judge for themselves which firms pay their bills promptly. The prompt payment code sets the standard for best practice between organisations of any size and their suppliers. All the Government’s strategic suppliers have signed up to the code. They have committed to pay 95% of invoices within 60 days and to work towards adopting 30 days as the norm. The Small Business Commissioner will support small businesses in resolving payment disputes and avoiding similar issues in the future. Most importantly, the Small Business Commissioner will set about encouraging a culture change in the way large businesses pay their suppliers. My noble friend Lady Couttie hoped that reform of the courts will be business friendly. I reassure her that the needs of business are being taken into account in these reforms. The Small Business Commissioner, once appointed, will be well placed to ensure that the reforms have the intended effect and facilitate the recovery of trade debts by businesses. Taken together, these measures should encourage a real change in payment culture, helping small businesses to access the cash flow they need, so importantly, to invest and grow.
My noble friend Lord Leigh mentioned the importance of trust and I will focus on this issue. One way in which businesses can restore public trust is through greater transparency, not only in their payment practices but in their operations as a whole. Quoted companies are now required to set out, in their annual report, how they take into account the interests of employees, customers, suppliers and the environment. They are answerable to their stakeholders on this, not just their shareholders. All firms with a turnover greater than £36 million now produce an annual statement setting out how they are combating slavery and human trafficking. Transparency builds trust and disclosures such as this are an important element to restore faith in responsible business.
Several speakers identified the role of business in improving life chances. We should recognise the real contribution that businesses make to social mobility. The Social Mobility Commission, in partnership with the Social Mobility Foundation and the Corporation of the City of London, are studying how businesses can help people from all social backgrounds to progress and improve their life chances. The top 50 UK employers which have taken the most action to improve social mobility in the workplace were announced on 21 June. We believe this to be the world’s first social mobility employer index. Some 17% of these firms now set social mobility targets as part of their business strategy, recognising that doing the right thing also makes good business sense.
My noble friend Lady McGregor-Smith spoke about the social mobility index and I pay tribute to her tireless work in this area. As she said in her recent report:
“Every person, regardless of their ethnicity or background, should be able to fulfil their potential at work. Diverse organisations that attract and develop individuals from the widest pool of talent consistently perform better”.
That is the business case as well as the moral case and I think that the whole House will support that statement.
Businesses up and down the country are going beyond their legal obligations and making a real difference wherever they operate. As my noble friend Lord Leigh put it, they run their business as a genuine stakeholder in the community. For example, as my noble friend Lady Bloomfield mentioned, Timpson, the retailer, employs ex-offenders and offers them a new start in life. National Grid recruits young people not in employment, education or training and equips them with skills for the future. As my noble friend Lady Rock said, Siemens contributes to the increasingly vital engineering skills that are so needed for our country. As the noble Baroness, Lady Greengross, mentioned, Anglian Water, recently awarded Responsible Business of the Year, has halved its carbon emissions on capital works through long-term relationships with its suppliers. Many of these companies are members of Business in the Community, the Prince of Wales’s network for responsible businesses. Its 800 members take action on employment, enterprise, education and the environment. They are acting responsibly and meeting their business objectives. The noble Baroness, Lady Dean, made important mention of social housing and housing associations. I agree with her that the role of housing associations goes beyond the provision of homes: they are actively addressing issues such as employability, parenting and excessive debt as part of the mix.
Through charitable giving, the wealth generated by businesses and entrepreneurs directly supports education and the arts. Private donations accounted for 18% of the income of arts and culture organisations in 2015, rising to 29% of income for smaller organisations with income of less than £100,000. That is a total investment of £480 million from private sources, an increase of 21% on the previous year—
“primarily driven by high-value individual donations”,
according to the Arts Council. This is important as we make ever-greater efforts to value the arts and their contribution to our well-being and, indeed, our economy. I think of the impact that the Symphony Hall has had on the regeneration of Birmingham, or the Baltic Centre for Contemporary Art in Gateshead.
An example that may be less familiar to your Lordships is the Auckland Castle Trust in County Durham, whose project has the potential to bring some 750,000 visitors each year to Bishop Auckland, create more than 600 jobs and bring economic benefits of some £45 million annually. The £300 million investment is being raised overwhelmingly from private sources: a great example of philanthropic vision. My noble friend Lady Bloomfield cited some interesting examples from the City and beyond. She spoke about the moral and economic case for contributing to the community—and she is absolutely right.
Our economy faces challenges as we exit the European Union. The Government will seek to give business as much certainty as we can and we will continue to work closely with the trade unions, in particular, with employer representatives and with businesses themselves. My noble friend Lady Neville-Rolfe stated that business needs a sense of vision and options for the post-Brexit world. She rightly pointed to the need for a clear vision for that. The industrial strategy White Paper, which the Government intend to publish this year, will build on the proposals we put forward in January and the many representations we have received. It will set out a shared vision of the way ahead. Businesses have demonstrated their resilience through the financial crisis and their ability to grow and offer employment to more people than ever before.
My noble friend Lord Popat urged the Government to be bold and I believe that we are being just that. As my noble friend Lord Shinkwin put it, rather succinctly, let us always remember that the NHS, schools and other vital public services rely on the wealth created by entrepreneurs through the businesses they have built. Let us celebrate the contribution they make and ensure that their voices are heard in the decisions that lie ahead.
Lord Leigh of Hurley
I thank my noble friend the Minister for his all-encompassing response and thank those noble Lords who took the time and trouble to participate in this debate and say some very nice words about a very simple task I undertook—it compares well with the last debate I led on business, which attracted less complimentary comments. I am delighted that we have achieved so much consensus and agreement, although to clarify for the noble Lord, Lord Tunnicliffe, the fact that I criticised the Conservative manifesto did not mean that I agreed with everything in the Labour manifesto—not at all.
Lord Leigh of Hurley
I have read it—in detail—and I would be very happy to discuss with the noble Lord, Lord Tunnicliffe, some of the concerns I had. I believe that it is vital for this House to listen to the concerns of business and to offer business guidance. Business has felt that it has had a disproportionately low level of interest from this House when compared to many other subjects, and I hope that this debate serves to answer that and that we will have the opportunity to revisit this subject in the near future.