Manufacturing and SMEs

Caroline Dinenage Excerpts

Wednesday 4th September 2013 Westminster Hall

[John Stevenson]

I completely agree. The hon. Gentleman and I, as fellow Cumbrians, agree that our local council does not do enough to support businesses locally or to take a proactive stance in Cumbria.

Is local government up to the job? What support or direction is it getting from central Government to ensure that it gives support to businesses, especially manufacturing ones? Councils can have a direct link to businesses through their everyday activities—planning, highways, environmental issues, health and safety, and, often, property ownership and rentals. What about other advice and help that local government could give, such as with business plans, legal and accountancy advice, finance, business structure, regulations and changes within an industry, and consumer and employment law? I have already commented on many other matters as well.

My experience of local government is that it is not nearly active enough in support of business. I agree with the point made by the hon. Member for Workington (Sir Tony Cunningham).

[Caroline Dinenage (Gosport) (Con)]

Does my hon. Friend agree that there is also a role for universities to advise businesses on some of the issues that he raised? In many cases, local enterprise partnerships could be a good way of facilitating that relationship.

[John Stevenson]

I agree with my hon. Friend. It is sensible for businesses fortunate enough to have a local university to engage with it. It will be interesting to hear the Government’s view of local enterprise partnerships taking on the role of helping small businesses in particular in their localities.

My final point is about the interface between the Government, civil servants and the businesses and the individuals within them. I have spoken to many businesses and the common comment is that the Government can be detached from the business environment. That is particularly true of local government, which does not always have a real grasp of the needs of businesses or the complexity of what they are trying to do. That is where there is a huge gap between the thinking behind strategy plans and the reality of businesses engaging and benefiting from support.

On procurement, are smaller businesses, whether manufacturing or otherwise, getting a real opportunity to win Government contracts at both national and local levels? I am aware of the Government’s 25% target and understand that it has reached around 16%, but there is still some way to go. Inaccessibility or inappropriateness of many policy instruments may affect a business’s ability to engage with the Government. Departments and think-tanks often have good ideas, but what about reality? Schemes may suit different sectors and different-sized businesses, but one size does not fit all.

On complexity, the Government must bear in mind fraud and audit trails, but the complexity of application forms for funding often puts people off from even applying. Those who are more engaged with the Government are often the ones who are always applying for funding, assistance or support, but many businesses do not engage with the Government or are not even aware of what they can offer. Real feedback should include those who have not applied for funding and support, but companies that have not applied should also be contacted to find out why not and what are the obstacles and barriers to that.

I am setting out some of the issues facing SMEs rather than offering solutions. I appreciate that the Government are trying to support the manufacturing sector, but there is room for improvement and it is incumbent on MPs on both sides to give their views and to encourage the Government to be open-minded, willing to take on board suggestions and, when appropriate, to make changes.

Other hon. Members will have additional points and issues to make that are relevant to this debate and I look forward to hearing them. I have touched on four. How worth while is it to have a definition of an SME that covers nearly 99% of all businesses in the UK across all sectors? Clearly, greater refinement and relevance is needed across all sectors, and I shall be interested in hearing the Minister’s comments on that. What support have the Government given to the manufacturing sector, taking account of the varying size and complexity of businesses and the accessibility of that support?

Importantly, is there a strategy for dividing the roles of central Government and local government, and does one know what the other is doing? Is there a clear division between the two? Where should businesses go—to central Government or local government? For small businesses particularly, it may be a big thing to talk to their local councillor, let alone MPs and central Government. When they want to access legal or accountancy advice, should that be at local, regional or even national level? My hon. Friend the Member for Gosport (Caroline Dinenage) referred to the role of local enterprise partnerships and universities. Do the Government want LEPs to take a role in helping small businesses particularly?

My final point is about the interface between users and the Government, and the requirement for feedback and for the Government to realise what the reality is for users on the ground. It is vital that Government initiatives fulfil their goals. Advice, support and assistance for small businesses particularly could help to transform the manufacturing sector. SMEs, however they are defined, are the great growth area for employment. They are the backbone of local economies, and they can be the engine for growth in our economy.

I look forward to hearing other contributions and what the Minister has to say about his views and intentions in supporting the world of manufacturing SMEs.

--- Later in debate ---

[Mr Bailey]

My right hon. Friend raises a valuable point. I talked about the risk profile. A huge body of evidence demonstrates that banks are excessive in the security they demand in order to lend to businesses, and that is one of the main barriers to businesses wanting to apply for loans. If there is a criticism of the Government, it is that while the Government have provided cheaper money for banks to lend to businesses, I do not think that has addressed the obstacles that are far more significant in terms of getting the money out where it is needed, into investment in small businesses.

[Caroline Dinenage]

Will the hon. Gentleman give way?

[Mr Bailey]

Certainly. I have to give way to my colleague from the Select Committee on Business, Innovation and Skills.

[Caroline Dinenage]

I apologise for interrupting the hon. Gentleman’s brilliant speech. Does he agree that it is also up to the local community to look at ways in which they can help businesses grow and invest? In my area, the local newspaper, The News, made a regional growth fund bid, which they used as a “bridging the gap” fund for small start-up businesses and those that wanted to grow, as a way of helping them to get access to the finance that they needed. Will the hon. Gentleman join me in welcoming that sort of initiative?

[Mr Bailey]

I certainly join the hon. Lady in welcoming that. In fact, one of the unintended, beneficial by-products of the problem has been the resourceful and inventive ways that communities and businesses have got together to overcome it. Peer-to-peer lending is an example of that. In my area, we have the Black Country Reinvestment Society, with which my fellow west midlands MPs will be very familiar. However, the scale of the entrepreneurial alternative lending sources still does not match what is needed for our manufacturing base as a whole.

I turn to a specific issue that applies not only to my constituency, but to the whole of the west midlands and the black country—other west midlands MPs may refer to this, too. First, I pay tribute to the Tata brothers for their investment in Jaguar Land Rover, which, I think it is fair to say, has transformed manufacturing prospects in the west midlands in a way that we have not known for 30 years. It is an indication of the value of our relationships with the Indian subcontinent and that growing market and growing access of capital, and of the historic association between the Indian diaspora in this country, and of course, the native India.

--- Later in debate ---

[Caroline Dinenage (Gosport) (Con)]

It is a pleasure to serve under your stewardship, Dr McCrea. I join others in congratulating my hon. Friend the Member for Carlisle (John Stevenson) on securing this important debate and on introducing it in such an insightful and thorough way.

I should probably start by declaring an interest. I have been the owner of a small marketing business since I was 19 years old, which is sadly many more years ago than I would care to admit. I would like to echo my hon. Friend’s comments in welcoming the current resurgence in UK manufacturing. It is great news that after a debt-fuelled boom and bust, our economy is finally starting to rebalance, with manufacturing and exports playing an important role in our recovery.

The latest data show that we have seen the biggest jump in output and new orders for almost two decades. That is great news for Britain, but there is no room for complacency. Speaking as a business owner, I would say that the key things the Government need to facilitate to allow other small businesses to flourish are: a skilled work force, the availability of finance, a solid infrastructure, ease of access to both domestic and international markets, and the reduction in red tape and bureaucracy.

While I support the many steps the Government are taking to boost access to finance, and there has definitely been a marked improvement, many businesses, sadly, still find it difficult to obtain credit. A concern all too often voiced by local business owners in my constituency is that, despite their best efforts to weather the economic storm, and no matter how thriving their order book, the failure to secure meaningful credit and the regular hits to their cash flow that result from late payment leave them on the brink of collapse.

I am still concerned about the regulatory burden on small and medium-sized businesses. The country’s 5 million SMEs provide 60% of jobs and generate more than 50% of GDP, and we must do everything we can to ensure that their chances of growth are not strangled by bureaucracy. I therefore welcome the work the Government have done on cutting red tape; indeed, through the red tape challenge, they have committed to scrapping, improving or simplifying at least 3,000 regulations. The one in, one out rule has saved businesses about £1 billion in regulatory costs, and I am glad it has been stepped up so that it is now one in, two out, although I will resist any pressure to enforce that in my shoe cabinet.

My particular bugbear, and one area where we still need to see progress, is the procurement of Government and other public sector contracts. That is one thing I know about, because, as I say, I have owned a business for more than 20 years. The paperwork involved in trying to get considered for a Government contract can still be overwhelming. The tendering process for private sector contracts is still significantly less complex than for public sector contracts.

Although I warmly welcome the scrapping of many of the pre-qualification questionnaire requirements, as do businesses in Gosport, there is still room for such processes to become even more efficient. John Allan, the chairman of the Federation of Small Businesses, quotes research showing that only about a fifth of SMEs have bid for public sector contracts in the past year, in large part because it simply is not worth the effort and because of the intrusive amount of company information that needs to be supplied. A contract my business recently looked at bidding for required financial details of not only my company, but every company I was thinking of subcontracting to, which is hugely bureaucratic for a small business. There is still more to do on this issue.

Our SMEs are the drivers of prosperity in this country, and we should give them every opportunity to overcome obstacles and to expand. I welcome the Cabinet Office announcement in August that there will be a shake-up in Whitehall procurement and that the Government want to loosen the grip of an oligopoly of large suppliers and let in more SMEs. However, we must do more to cut bureaucracy in the application process. As we move from rescue to recovery, our economic success depends on a vibrant, innovative private sector.

That innovative private sector must have the Government’s backing when it develops new and exciting products. The Government rightly take great pride in our country’s innovation, and they invest heavily in R and D; indeed, globally, we are second only to the US in terms of our scientific knowledge base, but we slip down the chart when it comes to turning that innovation into economic prosperity and jobs. The Government’s enthusiasm for helping to develop new ideas is, sadly, not matched by an enthusiasm for buying the results. Unless we become earlier adopters of innovation, British R and D tax credits will continue to deliver German and American manufacturing jobs and profits, as those countries invest in making the things that originate in Britain.

SMEs are often cited as the lifeblood of our economy. We must match those words with action and eradicate the lethargic culture of bureaucracy, which sometimes clogs the procurement process and holds back British business. We must celebrate all that the Government and business, working together, have done in that regard, and we must ensure that SMEs continue to flourish.