SMEs (South of England)

Caroline Dinenage Excerpts

Wednesday 15th June 2011 Westminster Hall

[Caroline Dinenage (Gosport) (Con)]

Thank you, Mr Streeter, for allowing me to raise this important topic. As a director of a small business based in the south of England, I fall squarely into a category that necessitates me to declare an interest in the subject matter. However, holding such a position also allows me to share some first-hand experience with hon. Members.

Small and medium-sized enterprises hold the key to a successful private sector-led economic recovery in the UK. At a recent UK Trade & Investment maritime sector meeting, I learned that the proportion of UK exports accounted for by SMEs was 5% below the European average. If the UK were simply to raise that level to the average, it would generate a staggering £43.6 billion of additional GDP. That is enough to wipe out the UK’s current account deficit two times over. It is important to keep that in mind when discussing SMEs. These businesses may be small, but they have truly enormous power to drive our economy.

In previous debates in this Chamber, I have highlighted factors that afflict small businesses and limit their growth. In particular, I raised my concerns about the creeping trend of larger businesses putting unfair influence on supply chain companies, such as by extending their payment terms, and the continuing difficulties small businesses face in trying to secure funding from banks. That context is important as we should not view the Government’s role in isolation from all the other factors affecting small businesses.

I strongly believe that the Government “get it” when it comes to SMEs, and they have made it clear that they support their growth and longevity. They continue to put pressure on the big banks to increase their lending to small businesses. They have reinvigorated the enterprise finance guarantee scheme and established a number of new, highly targeted grants. It is clear that the Minister and his Department are working extremely hard to put UK companies on a firm footing.

When the Minister visited my constituency, he will have seen a site called Daedalus, a former naval airbase that now serves as home to a number of small aviation and marine-based businesses. This vast site is being promoted as a potential enterprise zone by the Solent local economic partnership, which will also submit a regional growth fund grant application to support its redevelopment as a hub for business innovation for the entire region. I hope the Minister appreciates the importance of the redevelopment of that site for the future prosperity of the constituency.

It is clear that the Minister also understands the need for the job market to end its over-reliance on the public sector. The need to encourage growth, commerce and manufacturing as part of a private sector-led recovery is at the centre of the Government’s plans, and I commend that approach. After all, it is far more sustainable to grow our way out of a recession than to spend our way out of it. However, the need to rebalance the economy in favour of the private sector applies beyond the boundaries of the north and the midlands. It is a concern to my constituents and many of my colleagues here today that only one project in south-east England succeeded in the first round of regional growth fund applications, as opposed to 14 in the north-east. The Government’s analysis of the first round RGF grants makes for interesting reading. The maps provided on the Department for Business, Innovation and Skills website show a stark contrast between the money diverted north and support for projects in the south.

I represent one of a cluster of constituencies in the Solent area that, together, share all the characteristics of towns and cities in the north of England: public sector dependency, low average wages, low levels of educational attainment and areas of multiple deprivation. On most measurable scales, including unemployment and business growth, Gosport is well behind some of the areas further north that continue to enjoy strong economic support from the Government.

If we were to plonk Gosport in the middle of the north, it would be the second worst performing local authority area in the entire north-east in terms of public sector job dependency. It would also have the third worst ratio of jobs to people in that region, with less than half a job per working adult, whereas the English national average is 0.8% of a job. With its number of active businesses per 10,000 residents being just 25.5, Gosport is the 13th worst performing area in that regard in the entire UK. Almost 35% of working adults in the constituency are employed by the public sector, which is one of the highest such dependency rates in the entire country, and that is before counting the thousands of people who work in the armed forces, especially the Royal Navy, and who call Gosport their home.

Gosport is at least as reliant on public sector jobs as cities further north, yet it appears to have been excluded from wider Government support. Certain Government measures to promote the growth of the private sector have also been denied to the south-east as a whole. I am, of course, speaking of the national insurance contribution exemption for start-up businesses. I cannot help but find that decision a little unfair as research by the Forum of Private Business shows that 51% of businesses in the south-east considered taxation to be the greatest barrier to growth, which is the highest proportion in the UK.

[Penny Mordaunt (Portsmouth North) (Con)]

I congratulate my hon. Friend on securing the debate. Although Portsmouth fares slightly better than Gosport, we are still described as a northern town on the south coast. Does my hon. Friend know that we fall far short of the Treasury’s projections and ambitions for the national insurance contribution holiday? Although that might have been the right policy to start with, it is not having the desired effect. Now would be a good time to expand the criteria for qualification to include not just different geographic locations and start-ups, but small businesses that hope to expand substantially over the next few years.

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[Caroline Dinenage]

My hon. Friend makes an excellent point. It is worth noting that between 2007 and 2010 the south-east experienced the highest increase in deprivation in the UK. Will the Minister tell us what criteria the Government used in making the decision to exclude the south-east from NI relief? Government responses to that question usually state that the focus is to support areas that have traditionally relied more heavily on public sector employment, and they are usually thought to be the north and the midlands. That same description, however, could also be applied to a number of constituencies in the south, including mine. Furthermore, the exclusion of the south-east has a doubly negative effect on Gosport, as it creates a disincentive to business to choose to locate in the area—which should be a prime area for regeneration according to the Government’s own objectives—over more affluent areas of the north that are indiscriminately provided with Government support that they might neither need nor warrant.

[David Simpson (Upper Bann) (DUP)]

May I declare that I have an interest in the business sector in Northern Ireland? I congratulate the hon. Lady on securing this debate. Earlier in her speech, she mentioned banks and credit to small businesses, and I am sure she will share my concern about some of the findings of recent research papers on banks and the money being loaned to small businesses. The bankers have stated that they never promised to meet the Government targets; they say that they only promised to make the money available. Leading economists say nothing has changed in the manufacturing sector. In fact, over the past 12 months under this new Government, we have not seen any change from the banks, and small businesses, which are the backbone of the UK economy, are suffering greatly.

[Caroline Dinenage]

The hon. Gentleman makes a strong point. Yesterday, I met a small business owner in my constituency who is on the brink of losing his business and his house. Against a property that is worth £500,000, the bank will only lend him £50,000, which goes nowhere near far enough towards supporting him in trying to keep his business and his family together.

Although the Government clearly recognise that there are pockets of need in the south-east, it is thought to be extremely difficult to target national insurance investment at a sub-regional level. That may be the case, but such difficulties are not insurmountable. My constituents should not have to accept not receiving help they badly need purely because it is felt that giving them that help would be too difficult.

[Penny Mordaunt]

On that point, we know from questions tabled to the Treasury that the costs of providing that help, either at unitary authority level or district level, would not be so prohibitively high as to stop such a scheme going ahead.

[Caroline Dinenage]

That is excellent news, and I know my hon. Friend has done a lot of work on this issue, for which I am very grateful.

I now want to highlight the significant benefits the regional growth fund has brought to certain regions. In the north of England, the RGF has so far created 10,750 jobs directly and 10,916 jobs indirectly, and in the midlands it has so far created 7,923 jobs directly and 37,809 jobs indirectly. By comparison, in the south-east and east of England combined, the RGF has created just 427 jobs directly and 361 jobs indirectly. It is therefore clear that the south gets next to no support from the RGF or enterprise zone designations. Moreover, firms in the south have to pay higher national insurance contributions than firms in other parts of the country. For me and the majority of my constituents—who work in a peninsula where there is, on average, less than half a job per working adult—that is a bitter pill to swallow.

Statistics can also misinform. If anyone looked at the data for private sector jobs created in Gosport, they would be led to believe that we are supporting a growing economy. Unfortunately, that “growth” comes as a direct result of public sector elements of the Ministry of Defence being privatised. For example, Fleetlands, which is the biggest employer in my constituency, has been privatised, becoming Vector Aerospace. That company is now in the private sector, but there are no new jobs. In reality, every year in Gosport more businesses go bust than are created. Officials must look beyond simple numbers and qualifying criteria when making decisions about which areas are in the greatest need of help. The south as a whole has benefited from the creation of large numbers of private sector jobs in the past. It should not be punished for being successful in that regard, and nor should those areas in the south that need help be excluded from Government support solely on the basis of geography.

I understand that the apportioning of Government funding to support business cannot be seen as a local issue. Of course Government funding must focus on achieving wider goals, and must be allowed to maximise the benefit of the schemes it supports for the greatest number of people. I also understand that the RGF and enterprise zone applications are subject to independent scrutiny, which is as it should be. However, I believe that many people have a misconception that the south of England is a universally prosperous region. I hope that I have made it clear that Gosport is certainly not universally prosperous, and I am sure that my colleagues would all be able to provide evidence of areas within their own constituencies that are desperately in need of regeneration.

Despite the difficulties private partnerships in my area face, I have been very impressed by some of their achievements. One such partnership received support from NatWest and Lombard to fund the purchase of a large milling machine worth nearly £500,000 by two Gosport businesses, Marine Concepts Ltd and the Curvature Group. This new joint venture has allowed UK companies to produce components for a wide variety of sectors, including marine, renewable energy, aviation and motor sport. Those sectors had previously required the services of businesses as far afield as Australia in order to meet their requirements. Such investment is creating real jobs as well as preserving the UK’s reputation as a centre for innovative manufacturing. That has been achieved by advanced manufacturing businesses successfully repositioning themselves from serving the Royal Navy to serving private clients across the world.

However, for every such partnership, there is another business struggling with the structural deficit left behind by a radically changed market, which in the case of Gosport has been caused by the contraction of the Royal Navy. Such businesses are willing to adapt, but they are unable to do so without help. For the past 700 years, Gosport—and, in fact, the whole Portsmouth area—has relied on the military to support its entire economy and employment. Much like a mining town or manufacturing centre, the contraction of our armed forces has been intrinsically linked with the falling fortunes of the local economy. However, when the size of the military declines, areas that are dependent on the military are not provided with the same level of Government protection as mining or industrial towns in decline.

Gosport needs to be seen not only as an area with economic problems, but as an area with the potential to reinvigorate itself, given the right encouragement. All the businesses situated on the Daedalus site understand the potential for growth. They are not looking for Government handouts. What they need are a few key measures that can help them create a viable business and the employment that comes with that.

First, they need certainty over the Daedalus site’s future. Historically, the site has been owned by many different Government agencies. There is a runway, yet small aviation businesses have sometimes not been allowed access to the site. Those businesses have not had the incentives to invest, nor the certainty that if they were to invest, they would be allowed to grow and flourish. They also need targeted tax and planning concessions, improved infrastructure and a level playing field; in other words, everything that an enterprise zone would provide.

All the businesses based in or around the Daedalus site are looking to expand, and they are prepared to spend money to do so. I spoke to the owner of one of them yesterday, who said that he was prepared to invest many thousands of pounds to take over a decrepit old building and turn it into a modern, state-of-the-art business premises, yet he had only been able to secure a 10-year lease from the regional development agency. Offering such a short lease is just not good business.

Many of the businesses on the site want to source local people to undertake apprenticeships or engage skilled engineers who are leaving the armed forces. The social benefits to my constituency—where 20% of 16 to 23-year-olds are not in education, employment or training—are clear, and this would help many young people realise their potential.

The lesson is obvious. If businesses feel secure enough to invest and have potential orders waiting in the wings, they will expand. Enterprise zones can create that security, while entrepreneurial business people have never had problems in generating business.

The Daedalus site also lends itself perfectly to the wider qualifying criteria for an enterprise zone. Its green credentials are fulfilled by providing opportunities for local employment, rather than necessitating long commutes by car. That would also have the benefit of relieving the pressure on the infamous A32, the only major road from Gosport that leads into the heart of the peninsula. The pressure placed on a beleaguered transport system burdens my constituents with hours of congestion, particularly during peak periods, as traffic struggles through bottlenecks, and 20,000 people have to out-commute to get to work every day. Gosport is the largest town in the UK without a railway station. Therefore, Gosport not only needs inward investment; it deserves it. That would finally allow the area to realise its full potential, and I am confident that it would also act as a beacon for investment from the private sector.

If I may stray briefly beyond discussion of the south to make a broader national point, I would also welcome clarification from the Minister about how applications for regional growth funding and enterprise zone status are co-ordinated. As he will be aware, the RGF is administered by an independent board under BIS, but the enterprise zone project is administered by the Department for Communities and Local Government. Some people involved in putting forward bids have said they are confused about how applications for both schemes by a single local enterprise partnership will be viewed. I would welcome a reassurance from the Minister that both Departments involved have a clear understanding of how each scheme complements the other, and I ask him to consider providing guidance on how dual applications can be dealt with, and to say whether such an approach would prejudice the likelihood of success. I might add that the application deadlines for both schemes are, after all, on the same day.

[Penny Mordaunt]

Does my hon. Friend agree that it would also be helpful if the Treasury were to allow a relaxation of competitive tendering rules? She identified the regeneration of Portsmouth harbour, which would benefit not only Gosport and Portsmouth, but Fareham and other nearby towns. However, that regeneration can only happen if the Treasury enables those rules to be relaxed. Clarification on that issue would also be helpful.

[Caroline Dinenage]

My hon. Friend makes an excellent point. As she says, many parts of the Portsmouth harbour area would benefit from that type of help.

I believe the case for business improvement measures in my constituency is compelling—indeed, overwhelming —as does the Solent LEP. I am certain that there are colleagues in Westminster Hall today from constituencies across the south of England who feel the same about projects in their own areas. Therefore, I would welcome a reassurance from the Minister that, first, he is aware of our concerns, and, secondly, he will do all he can to support and encourage the growth of small and medium-sized businesses in the south.