Small Business, Enterprise and Employment Bill

Baroness Wheatcroft Excerpts

Wednesday 7th January 2015 Grand Committee

[Lord Mitchell (Lab)]

My Lords, first, happy new year to everybody. At Second Reading, the general tone that came from these Benches was that we welcome the Bill. We welcome it because we, the Opposition, realise only too well that national growth in productivity, investment, exporting and employment—all of which we desperately need—can come only from a strong political culture that supports small and medium-sized companies. The Government, and in particular the Conservative Party, want to lead us to believe something else, but we refute it. Labour stands for a dynamic business sector that will prosper with strong support and without the debilitating threat hanging over us of the possibly of the UK leaving the EU two years from now.

I must admit that even I have struggled to keep up with each of the announcements that the Government have made for various forms of funding for small business. Given that it is my job to keep up with all of this, I wonder what the average small business man at the sharp end makes of it all. Let us take a look at Funding for Lending. I said at Second Reading that I thought it was a flop, and the Minister—the noble Baroness, Lady Neville-Rolfe—chastised me and said that I had got it wrong. But I still have to say that I do not think I have got it wrong; I think I have got it right. Much of the funding that has been advanced to the banking sector has been assigned by the banks to the business areas that they know well: in particular, mortgage lending, which is easy, profitable and relatively risk-free for them, as opposed to lending to small businesses, which is hard work and risky, and probably cannot make anything like the same return.

Predictably, they went for the easy option and the route that minimises risk and maximises profit. As a business, why should they not? But that is not what the Government said was going to happen. Investment in small business has made little progress, which is why I called it a flop. The noble Baroness may think otherwise but I can assure her that, based on my own background in equipment leasing, I know the SME funding scene. She may be told by the banks and by her officials that small businesses are being helped, but I speak to those at the coalface and know that many businesses strive in vain to get vital funding. We have to do more to help them.

With that in mind, I turn to this first group of amendments. They are designed to ensure greater security and understanding of the action that the Government are taking with the aim of supporting small businesses. They will enable us to better account for the effectiveness of the steps taken in this direction. The first of the two amendments requires the Secretary of State to undertake an immediate strategic review of the key issues affecting small businesses and, in doing so, design better policy interventions to support them. The second requires that, allied to this strategic review of what small businesses need from government, the Government should publish an annual report which details the steps that they are taking. Taken together, the intention is, first, that there will be a greater level of strategic thinking about the correct policies to support small business in the future and, secondly, that Parliament will be better able to scrutinise these policies.

The truth is that this is required because all is not well with regards to the policy framework for small businesses. During the term of this Government, they have been adversely affected by a £1,500 rise in business rates in what by any account have been difficult trading conditions. It is our view that they should now see a freeze or a cut in business rates. This is one immediate step that could be taken towards supporting small firms. When it comes to receiving advice about how to strengthen and grow small businesses, the landscape remains confused. I have to say that when I go around and ask those who are running small businesses what is the main issue that really bothers them, it is business rates—so this needs to be looked at very seriously.

In the United States, the Small Business Administration represents a successful model for providing support and advice, and indeed for directing policy, and one that we should look to imitate in this country. It is often easier for large companies, especially those which can pay for lobbying advice, to understand how to approach business and how to look for the support that government may be able to provide. In the UK, responsibility for small businesses lies with the Minister of State, who has additional sectors to his brief. In the US, the head of the SBA is a member of the President’s Cabinet: surely we should have the same prominence here.

Perhaps the most important area which the report sought by these amendments should look at is access to finance. There has been a great deal of activity with the intention of improving credit conditions for small businesses—but, as I have said, with only limited success. The Federation of Small Businesses’ Voice of Small Business index shows that small firms are struggling to get the finance they need and still require greater competition and choice in the banking options available to them. Without improvement in these areas, we are unlikely to see significant improvements in credit conditions. The latest Bank of England Credit Conditions Survey shows that credit availability fell slightly during the last quarter, while Funding for Lending figures show that net lending to small businesses remains negative, despite improvements for larger businesses. This issue will arise throughout our discussions in Committee and these figures provide the backdrop to it.

The amendment would also require the Secretary of State to look closely at how best to support small and medium-sized businesses that want to export. This is vital and goes to the heart of the kind of economic recovery we want to experience. The news over the recess that the UK’s current account deficit is at one of its highest ever historic levels should serve to focus our minds on the importance of exports. The export-led recovery that the Chancellor promised has simply not taken place, and to meet the impossible target of £1 trillion a year by 2020 would require nominal growth of around 10% per year—way above current levels and, I must say, way beyond anything I can imagine.

The OBR’s latest forecast has revised down the contribution that trade is expected to make to GDP growth for every year of the next Parliament. Policy action taken to improve this does not show much sign of having a positive effect. The £5 billion export financing facility has helped few businesses. This is a huge missed opportunity. Also, I simply do not understand why we are forever cutting back our embassies and trade capabilities. You cannot set up an environment for export if you are not represented in the countries concerned. In my travels, I frequently come across foreign business people who say that the UK does not take their own country seriously and how good it would be to have more ministerial and trade visits.

Finally, we need to see increased help for those who want to recruit apprentices. The number of apprenticeships actually went down last year, so this is another area that the Government could usefully look at both in terms of future needs and the efficacy of current government policy. I hope that the Minister will be able to accept these amendments, which represent a good way of combining strategy planning and support for small businesses and the effective scrutiny of policy interventions. I beg to move.

[Baroness Wheatcroft (Con)]

My Lords, I take issue with these amendments. What we do not need is another report into the problems that small businesses face. There is no shortage of information on these problems, not least from the Federation of Small Businesses, to which the noble Lord referred. We know what the issues are. There is not enough finance available for small businesses. One of the things that this Bill attempts to do is make access to finance easier. It also includes lots of measures that will help small and medium-sized businesses. However, what those businesses need is action now, not another delay while another report is produced. As we get regular feedback on what the legislation does, that will become more than apparent. Organisations such as the federation will not hesitate to make clear what they think about what the Government are doing. This would be just another bureaucratic exercise when what we need is action.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)]

My Lords, Amendment 1 asks that we report on the long-term needs of small and medium-sized businesses. In moving it, the noble Lord, Lord Mitchell, touched on the wider issues surrounding small business. I do not want to give the Committee another Second Reading speech. A lot of the issues that the noble Lord raised will come up on the various amendments that we discuss today, but I feel that we have done more to help small business than any Government before. This Bill is the latest evidence of that process.

In particular, I refute the claim that the Government are not doing enough to increase lending to small businesses. While the annualised figures remain negative, the tide is turning and there is a significant upward trend. According to the SME Finance Monitor report of November 2014, 71% of all loan and overdraft applications within the previous 18 months were successful. We support small business in many ways. Of course, a recovering economy—which this demonstrates—after probably the worst recession in history is a very important way to help entrepreneurs.

Turning to the amendment, first and foremost, through our industrial strategy the Government are working in partnership with industry to understand the future needs of all businesses and to set the long-term strategic direction. In each of our sector strategies we have joined forces with industry to set ambitions for the sector and our commitment is to invest in helping firms—including small firms—to access finance, skills, innovation and export opportunities so that we can compete internationally. I share the noble Lord’s aspirations for international success.

As well as engagement, we undertake in-depth research and analysis every year to fully understand small and medium-sized business needs. I draw attention in particular to the Small Business Survey, BIS’s flagship annual research project. Results from this are used to develop our business support policy and are also published so that private sector organisations working with small businesses can benefit from the insights. The survey is considered the country’s foremost source of knowledge about small business needs and is widely referenced.

Amendment 1 refers to specific areas of policy relating to small business. This is a good list and I take this opportunity to reassure the noble Lord that the Government are already researching and reporting on the needs of small businesses in these areas. I will give some examples. Last year, the British Business Bank published its strategic plan, setting out a long-term vision for the organisation that will deliver for smaller firms. Only last month, the bank published its first report on trends in business finance markets. The market gaps identified through this in-depth market analysis are feeding into the bank’s product development process. Important and interesting conclusions include the following: more businesses will seek finance for growth; a more diverse and vibrant supply of finance is needed—this Bill helps with that; and awareness and understanding of the range of finance options is not yet comprehensive enough. I am placing a copy of the report in the House Library. We expect future reports to be published on an annual basis.

Secondly, last year, UKTI published Britain Open for Business, an update to its five-year strategy for providing practical help to exporters. UKTI last year worked with 42,684 SMEs to provide a range of services designed to help companies enter new markets. This hands-on relationship allows UKTI to understand and catalogue the needs and challenges faced by these companies and to develop specific programmes to overcome perceived barriers to exporting. Last year, this included a first-time exporter’s package, a medium-sized business programme and an e-exporting initiative.

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[Lord Newby]

The important thing is that information which a company has and which might be shared is shared only with the explicit prior approval of the company. As I was saying, this is one of the things that is often included in the terms and conditions of any agreement or relationship that the company has with the bank. Unless the company has explicitly said that it is prepared to have its data shared, they will not be shared. More generally, all the activity that we are talking about is covered by normal Data Protection Act safeguards.

[Baroness Wheatcroft]

My Lords, I just wish to raise a slight qualm that I have on this issue. I applaud the idea of data sharing and the theory that it would enable small firms to shop around for credit more easily in the Funding Circle that the noble Lord, Lord Mitchell, mentioned—it is one of those organisations that can respond very quickly if it gets the data that it needs—but Amendment 17 seems to offer the possibility of small firms picking and choosing which bits of the data are made available. We all support small firms but some do not always behave entirely honourably, and I would be very nervous about a proposal that allowed a small firm to say, “This little bit of the verdict on what I do can be relayed to a potential lender but not that little bit because that little bit tells a very different story”. Therefore, I think that we need to be clear that when we are saying that a small firm, or indeed any firm, can give its permission for data to be shown to an alternative lender, it needs to be the whole picture, otherwise we are in danger of getting to where we have got to now—with references to individuals, for instance—where the reference is meaningless. You are very lucky if the reference says, “You would be very lucky to get this person to work for you”, which of course can be interpreted in two different ways. People are now very nervous about committing anything on the basis of just a corporate reference.

[Lord Newby]

I think, my Lords, that that concern is dealt with by the fact that approval or agreement that data might be shared tends to take the form of being included in the standard terms and conditions of the bank, so one will not be able to pick and choose. One will be presented with a standard form that states, “You agree to the following forms of data being used”. There will not be much scope for negotiation as to which data are open for discussion.