Achieving Economic Growth

Debate between Clive Lewis and Kevin Hollinrake

Wednesday 18th May 2022 Commons Chamber

[Clive Lewis]

What competition drives the energy, water and rail sectors? They seem to be natural monopolies, if I am not mistaken, so can the hon. Gentleman tell me how the free market and competition help to drive down prices in those sectors?

[Kevin Hollinrake]

That is quite interesting, because energy distribution was very competitive in this country, with a huge expansion in the number of energy distributors that led to a driving down of prices very effectively. Where people got caught out was with the huge increase in wholesale costs, which drove lots of them out of business. However, that was an excellent example of how competition does work and drives down prices for consumers and increases choice. As to source energy, I agree that there are not enough big producers, which is why we must be careful when one or two big companies dominate the marketplace.

G.K. Chesterton said:

“Too much capitalism does not mean too many capitalists, but too few capitalists.”

That is why we need to focus on competition, making sure that the environment is very attractive to new businesses starting up and growing—SMEs. All our policies should focus on small businesses, not on big businesses, which can generally look after themselves.

We have to look at the brutal facts, I am afraid. I was a bit disappointed, as I said earlier, by what the Governor of the Bank of England said to the Treasury Committee about some of the issues we are seeing with labour shortages, which are driving inflation. We looked at some of the issues that SMEs, in particular, are facing in terms of accessing labour. In 2020, the last year we have reliable data for, net migration into the UK dropped by 88% from 271,000 people down to 34,000 people. People may say that is a good thing because we wanted to get a hold of immigration, and some of it may be due to covid effects. Nevertheless, pubs, restaurants and farmers, all of whom are generally SMEs, are finding life very difficult. We have to make sure that there is an available supply of labour. Another issue causing particular problems for SMEs is red tape at the borders—non-tariff barriers, as they might be called. There is a 45% reduction in the number of SMEs exporting to the European Union. These are facts we have to confront and deal with.

Levelling up is of particular interest to me as a representative of the north—from the north and for the north. We need to make sure that we level up properly and that the opportunities are spread equally nationwide. It is a huge undertaking. In relative terms, the gap between the north-east and London and the south-east in terms of productivity per capita is as wide as it was between East Germany and West Germany prior to reunification. It took 30 years and $2 trillion to narrow that gap. It is the right thing to do but it is a long haul. We need to get the private sector to invest, which was the lesson from East Germany. Such things as the enterprise investment scheme and the seed enterprise investment scheme are vital for equity investment to SMEs. Those measures are due to expire in 2025, and we need to see them extended. I would also like to see enhanced tax breaks for the EIS and SEIS so that businesses in the less well-off parts of the country can attract more investment capital into those areas.

Finally, one thing could make a massive difference. Lots of SMEs in this country will not borrow—some 73% would rather grow more slowly than borrow—which is partly because of the lack of trust between small businesses and big banks. Other parts of the world have something called regional mutual banks—Germany is a good example—that expanded lending during the financial crisis. In the UK, we contracted lending during the financial crisis—about 20% on either side. Regional mutual banks lend more into the economy at key times, and that could be a good policy for driving SMEs forward in our regions.