UK Industry: International Competitiveness

Lord Cavendish of Furness Excerpts

Thursday 5th July 2012 Lords Chamber

[Lord Cavendish of Furness]

My Lords, I am pleased to join others in thanking my noble friend Lord Jenkin of Roding for introducing this debate with such skill and clarity. His reputation brings an enormous amount to this House.

My purpose in intervening today is to draw attention to the obstacles that prevent SMEs, in particular, from being competitive. Since those obstacles are real, in my view, I see no merit in being mealy-mouthed about them. It should be recognised that during the years of financial services hubris, those of us who do things, make things or grow things became highly unfashionable and only slowly are we emerging from those dark days and those perceptions. It appears to me that Governments used to ask bankers how the economy worked. When their fallibility became apparent, advice was sought from the owners of supermarkets and big business. It is my contention that the people that Governments should have been talking to are those who work in the sector of small and medium-sized businesses that make up such a very high proportion of this country’s productive capacity. It is they, and perhaps only they, in the short term, who can deliver growth and investment and they stand ready to do so if only this coalition Government have the will and the courage to unshackle them and let them take flight.

I know that the Minister will point to measures he has implemented and plans to implement in the future. Of course, there are improvements and they are appreciated. I do not mean to underestimate the challenge that this coalition faces or ignore the real achievements in the face of these challenges. It has brought onto the statute book three very major reforms, the main benefits of which, as with many reforms, lie in the future.

I operate, as I have done for the past 40 years, in that very sector which I so passionately believe is crucial to national recovery, investment and growth, and that brings me to declaring an interest. I have beneficial interests in a landed estate based mainly in south Cumbria. The estate’s activities include farming, forestry, property management, leisure, tourism, minerals and housebuilding. We also own and run a racecourse and have 250 people on the full-time payroll, 150 of whom are engaged in extracting, processing and selling slate, a significant proportion of which goes to markets around the world. On the question of exporting, I believe that a successful exporter has a mindset, more than anything else. If I can dig stone out of the Cumbrian hills and send it to the other side of the world, it ought to give encouragement to other exporters.

Let me remind your Lordships what the SME sector comprises. There are 4.5 million small businesses in the UK. They account for 58.8% of the private sector and nearly half of all private sector turnover. In 2010, family businesses contributed £81.7 billion in tax receipts to the UK Exchequer, or 14% of total government revenues. The barriers to growth and investment under generic headings are well known to the Government; perhaps less well understood is the disproportionate impact they have on the sector where I have some experience. The burden of reporting to government departments on such things as PAYE, VAT and national insurance not only grows remorselessly, but those departments do not work to the same standards and timescales as is the norm in the private sector. All entrepreneurs in this sector will rightly point to employment and health and safety laws and their implementation; a lack of credit, widely rehearsed in this debate; and planning delays and regulation as being among the main factors that inhibit growth and job creation. I shall say a word on each and address some other considerations that are sometimes overlooked. I was hoping that other noble Lords would cover the importance of broadband, which I know is a very important aspect of this.

Decent people believing in the rule of law have always defended the principle that justice is worthless unless it is accessible to all. People need and deserve protection from unscrupulous employers and I suspect that the reputation of tribunals for being one-sided in favour of claimants is sometimes exaggerated. However, something is very wrong—I suspect that it is the law itself—when I consider how attractive the system seems to be to vexatious claimants. It is also cumbersome and pitifully slow and therefore costly in terms of time and money.

Charities are particularly vulnerable, made worse perhaps by the Charity Commissioners’ understandable but strong guidance that claims should be settled rather than defended. I have personal experience of this through my local hospice, which I co-founded and was involved with for nearly 20 years, which was nearly ruined by a vexatious claim. I especially ask my noble friend Lord Green to take note of this. Charities play an ever-increasing role in society and I emphasise that they are significant employers and, as such, are very much part of the national economy.

It is above my pay grade to suggest how the law might be changed, but it is plainly true that the impact of employment laws on a small enterprise is different, and by magnitudes greater, from what it is on a large one—a point made eloquently by my noble friend Lord Brooke. In the matter of planning, authorities have apparently cut back on resources; that is something which they had to do and it seems right to me. However, they have done this without changing their methodology. I ask myself this: when all of us have found ourselves forced to do things more smartly and efficiently, why has so little been done in the public sector to do likewise? The effect is plain enough. Nearly 70% of those seeking planning decisions are having to wait longer than the legally required eight weeks. What makes this so scandalous is that about a quarter of such applications are for change of use and a quarter for minor improvements. Every planning permission generates economic activity and all delays costs jobs.

Across my own business, as I speak, 20 jobs are being withheld pending delayed permissions that have been agreed to in principle. Only today I heard that the retirement of a person in the highways department was given as the reason for a local housing development being delayed for six months. Just imagine the effect that that has on employment. My family business is at an advanced stage of considering installing an anaerobic digestion plant to generate green energy. As a consequence of government prevarication on several fronts, together with an estimated two-year delay in securing permission to connect, this project is now on hold. Again, although we can all applaud the intentions of the national planning policy framework, I am bound to say that I reserve my position until I see how it is interpreted at the local level and by the planning inspectorate.

In reaching a view as to the impact of regulation, I have relied on my own experience and that of my neighbours in Cumbria. By the time someone employing three people has completed all regulatory compliance, by my estimation he or she has lost in a working week the best part of a full day. On top of that, there will be the direct cash costs of compliance to be earned. I will cite two examples. I know a brilliant self-employed precision engineer who does work building submarines in the shipyards at Barrow and also in the nuclear industry. He is the sort of person this country really needs. He has an order book that would merit his taking on two or three additional people. He would be willing to train young people. He cannot and will not employ anyone until he sees at least some of the burdens removed and the high personal risk of employing people reduced.

My second example, moving from the sublime to the ridiculous, goes down to the farm. Under Defra’s electronic tagging system, if a sheep tears a tag out, as frequently happens—there is an animal welfare issue there—the farmer is obliged to identify it by reading the tags of every animal in the flock. Did anyone think to consult a farmer before such a crass regulation was introduced?

Another, largely ignored, casualty of all this suffocating red tape is civic involvement. I notice this especially among the farming community who, in my part of the world, have a strong instinct to participate in local affairs. I harbour the suspicion that among the official class the squeezing out of such people who possess a deep understanding of their communities is not entirely unwelcome. I can almost hear Sir Humphrey saying, “Intelligent and experienced people interfering in local government, Prime Minister? That is the very last thing we need”.

One other factor playing an increasing part in eroding our competitive edge is the utilities. I cannot imagine what possessed our predecessors when they created these powerful private monopolies. As one neighbour says, “You have to pay them a huge cheque before they get out of bed”. They are more statist than the state; more statist even than the BBC. In the countryside, all of us have no option but to engage with them. They are completely unresponsive to customers, ruthless in their financial dealings and the services they offer are often exorbitantly expensive. I will go so far as to say that unless the worst offenders are compelled to change their ways, they will continue to exercise a baneful effect on the British economy.

With some honourable exceptions, the utilities culture actually pervades all the agencies of the state to some degree or other. I sit on these Benches basically because I believe in a small state. I hold to the view that I have always held: whatever the state does, it does badly and expensively. As an example, the famous NHS IT system budgeted at £2.3 billion was abandoned when it passed, according to some figures, the £20 billion mark. I do not remember anyone being shot at dawn. All I heard was some tut-tutting and talk about lessons being learnt and lines drawn.

It was therefore slightly offensive for those who are law-abiding to be told by Ministers that there was no distinction between tax evasion and tax avoidance and that both were equally reprehensible. One is legal and the other is not. With the record all Governments have of husbanding our hard-earned money, one might reasonably conclude that the more I keep for reinvestment and the less the Treasury gets its hands on, the better for everyone and the better for the country. Besides which, most of us are willing to pay taxes for the public services we value.

I finish with an experience from last week. My company is considering the purchase of a struggling business in a remote part of Spain that might add to the diversity of our operations. Negotiations are at a very early stage and I cannot even guess at what might be the outcome. Despite that, at all levels, Spanish public officials are going to enormous lengths to facilitate these negotiations with the unambiguous purpose of saving a Spanish business and the Spanish jobs that go with it. Compare and contrast that with the culture of our own public sector. We simply do not have the right culture.

I see that my time is up. I do believe that we have the wrong culture. Unbelievable expenses are placed on SMEs. It may take a generation for the culture to change and become what it should be. But at this time of severe crisis when most of Europe has rendered itself uncompetitive, now should be the moment to change the way we do things; now would be the moment for Ministers to insist that public servants put themselves at the disposal of the public, as some of us older people remember that they used to. Even if a start was made at removing the worst of these burdens, even if the flawed culture begins to move in the right direction, then the SME sector stands ready to respond and will, I am confident, lead us out of these dark days to growth, prosperity and full employment.