Small Businesses

Lord Mendelsohn Excerpts

Tuesday 3rd February 2015 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I draw attention to my entry in the register of interests, which includes my current involvement in small businesses.

I congratulate the noble Lord, Lord Risby, on securing this debate, and on his excellent speech. I commend also the excellent comments across your Lordships’ House on a range of issues, including payments, finance and procurement. This has been a very interesting debate and raised important issues.

It is incredible that for a long time we have not had a much greater focus on small businesses. If the past is any guide to the future, in the next decade small firms will create most of our country's new jobs. Research has shown that over the past 20 years small businesses have created the majority of new jobs, and that has really been in businesses with fewer than 50 employees. Small firms have increased their share of total employment, too: their share of jobs was three times that of 1998.

We also need to understand that small businesses are not all turbocharged start-ups ready to explode with growth in the right circumstances and a bit of luck. Of new firms, 75% that start small stay small. As MORI has pointed out, however, some worrying trends are emerging. Surveys have shown that entrepreneurs with high growth ambitions have declined in Britain since 1999. This is very worrying. While the internet has provided for a huge proliferation of commercial activity, it appears that entrepreneurs are worried that the UK is not an easy place to scale from.

To make sure that we meet the requirements for supporting growth companies, we need more attention on access to finance, whether it is start-up capital, growth capital or working capital. We have an unusually low level and small amount of early-stage venture capital and a still sub-par banking sector. We need to use regulation to level the playing field for small businesses that operate in markets with power, economic and informational imbalances and asymmetries. We need a more aggressive use of public sector procurement to trigger the benefits of using small businesses and to support their access to export markets.

We need to look at particular sectors and how they are developing, and to see what we can do. I commend the excellent work of the Creative Industries Council, which has brought forward a very impressive strategy, involving government and industry, to develop the creative economy, which is dominated by small businesses. Of the UK's total workforce, 2.6 million—that is 8.5%—are employed in the creative economy. On average, employment in the creative economy grew over three times faster than in the UK overall. Growth stands at 10%, more than three times that of the UK economy as a whole, and higher than any other industry.

However, initiatives to open employment opportunities to young people are as important—and probably more important—as engines of employment growth. We are very impressed with the Apprenticeship Ambassadors Network and the work of its chair, David Meller, who has helped to make apprenticeships more accessible to small businesses.

Government should not be afraid to be a market catalyst, to provide an economic and political framework of stability and pro-business character. We must not, however, make the mistake of believing either that one size fits all or that we can intervene in every market. Public policy must make sure that local businesses with more modest ambitions and dynamic start-ups both get the sort of bespoke and customised attention that they require.

The Labour Party's adoption of a more assertive and aspirational role for public policy in supporting small business is really the legacy of Nigel Doughty, who led the Small Business Taskforce, established in 2011. Nigel tragically passed away nearly two years ago today, on 4 February. He was one of the most accomplished and visionary businessmen this country has ever had, and his tragic passing has robbed this country of someone who would have made an extraordinary and even greater contribution. His report remains required reading. It also shows how far we have drifted behind key international competitors in responding to current challenges and the type of agencies that would make government more effective.

We all welcome the Government’s small business Bill. The discussions we have had on that have shown that we all agree that it is a good start. However, I hope that the Minister takes this discussion as encouragement, as we move to Report, to strengthen its provisions in some key areas.