SMEs (South of England)

Anne Marie Morris Excerpts

Wednesday 15th June 2011 Westminster Hall

[Anne Marie Morris (Newton Abbot) (Con)]

Thank you, Mr Streeter. I shall endeavour to be brief. I am here, in large part, to give voice to the south-west, where we have a particular problem with support for small and, I would argue, micro-businesses, which are the lifeblood of our economy.

I should first pay tribute to what the Government have already done to help us. They have reduced corporation tax; we have the national insurance holiday for new businesses, and the extension of the small business rate relief is very much to be welcomed. Given that my cause is very much that of micro-businesses, which make up two thirds of my local economy by number of businesses and 15% financially, I am really pleased about the micro-business exemption from domestic regulation. That is exactly the sort of measure that we should be seeing more of.

Perhaps it is helpful to clarify what I mean by a micro-business. We talk about small and medium enterprises; one passing reference was made to a micro-business. The Minister might be keen to consider defining micro-businesses in legislation so that we can support them. Micro-businesses have been defined in various different countries precisely so that they can be given particular help and support, including tax carve-outs and exemption from regulation. That happens in Australia and in some states in the US. At the moment, we in the UK largely use the EU definition of a micro-business, which is a business with up to 10 employees and a turnover of €2 million. For this country, that is huge. I do not believe that it is an appropriate definition for this economy.

I submit, on the basis of analysis that I have undertaken of Office for National Statistics figures and am happy to share, that a more helpful definition would be an organisation with fewer than five employees and a turnover of less than £250,000. That way, the Government could specifically target help at such businesses, and it would not be quite as expensive as targeting a larger group. That group would include plumbers, electricians and other businesses that are crucial to any rural or deprived urban economy. It would also, inevitably, cover start-ups, which are essential whether they grow to be successful or remain in a steady state. I argue that micro-businesses will create the most jobs, which we badly need. In America, it is claimed that 90% of new jobs after the downturn were created in that sector.

I suggest that we need to reduce the cost and complexity that apply to micro-businesses. Tax is an obvious issue, and the Office of Tax Simplification has done good work, but we should consider more carefully the concept of a flat tax. It would be simple to apply. The suggestion that national insurance and income tax be integrated, even if that is simply a matter of administration, is welcome, but I urge that consideration also be given to VAT. Thresholds are not consistent across Europe, and many small businesses get to a cliff. There is a disincentive to do more than a certain amount of business, because businesses that get to the threshold must spend an awful lot of time earning an awful lot more money before they break even. There must be a way to solve that problem.

I welcome the Treasury’s reduction in the small profit rate. The Institute of Directors tax burden report for 2011 identified it as particularly helpful to micro-businesses, which it defines as businesses having fewer than five employees. However, the Institute of Directors says that it is a one-off win and that micro-businesses will not derive the same benefit as small and medium-sized businesses. It would be good to review what we do with the small profit rate of corporation tax.

The enterprise allowance for jobseekers is an excellent idea—clearly, some new micro-businesses will be started by the unemployed—but limiting it to those receiving jobseeker’s allowance, although a good start, might restrict the benefit brought by the scheme. To illustrate, I bring to the Minister’s attention an initiative at Portsmouth university, which works with graduates to support them, helping them bid to start new businesses and using local business people to mentor them. The university then works with the angel group to see how it can support graduates, but there is no tax incentive. Perhaps one way forward is to look at the enterprise investment scheme and consider whether we can create some form of EIS-lite.

Employment is the biggest barrier for most micro-businesses. I am pleased by the proposal to allow tribunals for unfair dismissal to kick in only after two years. That is welcome. I am also pleased by the suggestion of an employers’ charter. I point out to the Minister that way back in the 1970s, small businesses were given certain carve-outs from employment legislation. There may be lessons to be learned, and the matter might be worth reviewing.

Health and safety is the other big bogey in the room. Lord Young has done a first-class job. The exemptions from risk assessment that he suggests for low-risk businesses are to be welcomed. I strongly urge the Minister to consider negotiating with the Health and Safety Commission. At the moment, businesses with fewer than five employees are exempt from some requirements, but there is a risk that the commission will change its mind. It is important.

Perhaps I have given the Minister food for thought. Many of the initiatives that I have discussed would be welcomed across the whole south, not just the south-west, and micro-businesses would be delighted.