Small Businesses: Tax Reporting

Caroline Lucas Excerpts

Monday 25th January 2016 Westminster Hall

[Oliver Dowden]

I completely agree with the sentiments expressed by my right hon. Friend. I will come on to that point shortly—

[Caroline Lucas (Brighton, Pavilion) (Green)]

Will the hon. Gentleman give way?

[Oliver Dowden]

If the hon. Lady will give me one moment, I will finish answering the previous intervention.

When we seek to change the taxation of small businesses, it is vital that we should do so in a way that reduces the net impact on business.

[Caroline Lucas]

I thank the hon. Gentleman for giving way and I congratulate him on securing the debate. On the burden on small businesses, does he agree that there appears to be no evidence that all small businesses or self-employed people already keep track of their affairs digitally? Will the Minister tell us what his evidence base is for asserting that any change to the requirements will not be cumbersome for them? The assumption is that they are already keeping track of things digitally, but many constituents tell me that they are not. Therefore, the change will be a burden.

[Oliver Dowden]

I will come on to such points, but full consultation on any measures is important to inform exactly the situation faced by small businesses. The Chair of the Treasury Committee, my right hon. Friend the Member for Chichester (Mr Tyrie), has pointed out the specific problem of those without access to computers and IT altogether.

--- Later in debate ---

[Peter Kyle (Hove) (Lab)]

May I thank the hon. Member for Hertsmere (Oliver Dowden) for securing the debate? I share his condolences for the family of his predecessor, who passed away today. Even though his predecessor was not a Labour Member, he certainly made a big impact on politics in his day, and that legacy will be remembered for a great deal of time.

I am the Member of Parliament for Hove, in the city of Brighton and Hove, which is one of the most entrepreneurial cities in the whole country. It also has one of the highest rates of self-employment in the country. The self-employment rate for 16 to 64-year-olds in work is 13.5%, against a national average of 10%, with 55% of those people working in construction and 36% in professional, scientific or technical trades. That shows the nature of self-employment in the south, and self-employment is often a gateway to entrepreneurialism. Many of those self-employed people will go on to set up limited companies and become creators of wealth and employment, which drives the economy in Brighton and Hove.

Statistics, however, do not cover the nature and challenges of making the move to self-employment or setting up a microbusiness. I became self-employed early in my career and then moved on to set up a limited company and a microbusiness. I co-founded a local business, which, looking back, was the most educative experience of my life. We learn a huge amount when we decide to jump in with both feet and set up a business, as an enormous breadth of understanding and skills goes into setting up an enterprise and becoming an entrepreneur.

One key thing I learned from that experience was the nature of the risk involved in becoming self-employed or running a microbusiness. When we talk about people who are self-employed or run small businesses—sometimes as their friends, but particularly as policy makers—there is often an assumption that growth is linear, and that money increases and risk diminishes each year, as they get used to growing business and to the sector they are involved in.

My experience was very different. Growth came on the back of extreme risk and extreme vulnerability, followed by a period of comfort. I then had to make a decision: should I stay in my comfort zone or take the decision to move out of it, back into extreme risk and vulnerability? The business jumped into periods of growth, with each jump and each improvement in annual figures coming on the back of a period of risk. As the business employed more people and its growth increased, the risk did not diminish; it got greater and greater, because more depended on the business’s success. I have a huge appreciation for entrepreneurs who are growing businesses, because there is no inevitability about the success of any business. It comes only on the back of extreme hard work and the ability to take risk on behalf of a business and the people who depend on it.

Few people enter self-employment or set up small businesses with all the skills they need to do so. They sometimes lack skills in sales, admin, accounting, marketing, social media and product development. No one inherently possesses all those skills—particularly accounting—when they go into business or become self-employed. It is very unlikely that all of the 55% of self-employed people in the city I live in who work in construction have all the administrative and accounting skills they need. Talk of changes to accounting and reporting can therefore be extremely intimidating to them.

Gaps in people’s skills can be not just intimidating but terrifying. While people are learning skills, or worrying about lacking them, they are not doing. They are not out there selling, building the relationships that every business and self-employed person needs or winning new business. We must be mindful of that when we heap new regulation, and changes in accounting and reporting, on people who are self-employed or run small businesses. Talk of regulatory change can be intensely worrying for those who lack accounting skills. People who are worried become risk-averse and do not have the boldness of character we need in our entrepreneurs, particularly in the small business sector.

The self-employed have a lot to worry about. One third of them will earn less than the minimum wage for two or three periods in a year. They have no statutory holiday, and the working time directive does not cover their work. All of us will have heard stories from knocking on doors and talking to constituents at community events or reading their correspondence. I was struck by one particular story when I was campaigning during the general election. I knocked on the door of a tradesman who was self-employed and always worrying about the next contract. He told me, as he held his young baby in his arms, that he had never once been on a full week’s holiday with his wife and children. Instead, his wife takes the children away for a week once a year and he goes to meet them for the weekend, because he cannot take the risk of not completing a contract. That type of experience is repeated throughout the self-employed sector and the microbusiness sector. People in those sectors make a lot of personal sacrifices in order to drive the economy, particularly in the south of England.

[Caroline Lucas]

The hon. Gentleman is making a powerful speech, and he tells a strong story about the constituency of Hove, which is relevant to my constituency next door. Does he agree that the pressures on small businesses are made even worse by the fact that they often struggle to get hold of HMRC advice right now, whether on the phone or by other means, because tax offices are closing? As well as having a bigger consultation on the issue, the Government should look again at the resources going to HMRC.

[Peter Kyle]

The hon. Lady makes an incredibly important point. We have both been involved in local government issues and campaigned on national issues. Every moment that a self-employed person spends on the phone to the local council, HMRC or any other Government Department is a moment they are not spending getting new business, delivering new contracts and earning the money that will give them the security they need in the long term.

We know that HMRC has a lamentable record on customer service, which the Minister graciously acknowledged in answering questions in the main Chamber recently. I know that he will focus on that issue, and people such as myself and the hon. Member for Brighton, Pavilion (Caroline Lucas) will continue campaigning on it, because it is extremely important. In the interests of fairness, I will also carry on campaigning against my council in Brighton and Hove, which is a Labour-run council, to ensure that it offers better services for, and better contact with, its local businesses and self-employed people.

I am well aware that people who run big businesses in the city that I represent, whether American Express in Brighton, Kemptown or EDF in my constituency of Hove, have a named contact in the local authority. That contact is called the chief executive. If the chief executive of one of those big businesses wants to get the council on the phone, they call the council’s chief executive. However, the drivers of our local economy—people who run companies that employ fewer than eight people, which make up 90% of the businesses in our city—do not have a named contact in the local authority. There are no consequences if a phone is not picked up, or if a message is not returned. That symbolises how power is distributed in the wrong direction.

It would be wrong if we designed and implemented policies that put people off wanting to become self-employed. The calls that Members from all parties have made in this debate, imploring the Minister to ensure that there is a period of consultation, have been extremely well put.