Small Businesses

Huw Irranca-Davies Excerpts

Thursday 28th November 2013 Commons Chamber

[Mr Bain]

I certainly will not celebrate the three years in which we have had very little growth, which had a huge impact on SMEs. With respect to the hon. Gentleman, I want to speak about the positive issues on which we might find more cross-party agreement in this debate.

I refer hon. Members to the excellent report that Santander and Dods published recently in the House. It contains key recommendations that the Government should attend to quickly. It shows that 285 separate schemes are available to SMEs which, in the view of the report’s writers, is far too many. It sets out the good recommendation, which the Government could implement straight away, of developing a single portal through which SMEs can have contact with central Government. The report found that only 29% of SMEs were aware of the existence of the funding for lending scheme and that 28% of businesses thought that access to finance would be the biggest impediment to growth in the next few years.

Shockingly, the report revealed that only 12% of students in our colleges and universities would make working for an SME their first choice on graduation. That is a real concern, given that the vast majority of job creation in the coming years is likely to come from the SME sector, and it shows that there is much more that the Government, SMEs, colleges, universities and schools need to do to promote founding and working in small businesses as good career paths.

As a country, we need to do far more work on skills. Only yesterday, the Minister illustrated in a written answer to me the growing gap in early rates of pay between those who have level 4 skills and those without any qualifications at all. That hourly pay gap of £8.84 has widened by a tenth in the past six years alone. SMEs, the Government and local authorities need to do a huge amount to improve in-work training so that people can see wage progression in a job, and so that a job in a small or medium-sized enterprise can become a career with long-term prospects.

We need to improve the shockingly low rates of research and development in this country. In public and private sector research and development, we lag way behind our main competitors in the EU and many of the emerging markets. The Government must do much more to boost the innovation that comes from the many millions of small businesses throughout the country, such as Gaia-Wind in my constituency.

As a matter of urgency, we need to improve access to capital. When I speak to SMEs in my constituency, they make it clear that they are willing and able to take on more staff, and that they want to create more demand across our country. However, the banking system is simply not working for SMEs. We need new players to come into the banking system and regional banks that focus on the needs of the economies in Scotland, Wales, Northern Ireland and the different regions of England.

[Huw Irranca-Davies (Ogmore) (Lab)]

Does my hon. Friend agree that if that is to work, the regional banks in all parts of the UK, including Wales, need to be driven by entrepreneurial zeal, rather than a civil service ethos?

[Mr Bain]

My hon. Friend raises the important point that we need a culture of long-term investment, as has happened over the past few decades in Germany, where there has been strong support for SMEs from the Government and the financial institutions. We need to see more of that in this country and it would be best delivered through a system of regional banks that provide support to business on a dedicated, local basis.

Finally, in this most significant of weeks for Scotland, I must say that it is critical that the SME community speaks out on the question of Scotland’s continued membership of the United Kingdom. It would be disastrous for Scotland’s trade with the rest of the UK and disastrous for exporters if Scotland were forced out of the United Kingdom. It is important that all of us in the House encourage business to speak out on the need to keep the Union together.

I am incredibly supportive of small businesses in my constituency, and I look forward to hearing a positive debate among Members on both sides of the House.

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[Simon Danczuk (Rochdale) (Lab)]

It is a pleasure to follow the hon. Member for Brentford and Isleworth (Mary Macleod). I share many of her concerns about business rates and agree with some of the solutions she proposes. I thank the hon. Member for Newton Abbot (Anne Marie Morris), who has done an excellent job in securing the debate. It is important that it is taking place before the autumn statement, so I thank the Backbench Business Committee for helping to make that happen. Before I begin my comments proper, let me declare an interest. On small business Saturday, my wife and I will be opening a small business of our own: Danczuk’s Delicatessen in Rochdale. I encourage all hon. Members to visit and spend their hard-earned money.

[Huw Irranca-Davies]

I am aware of the opening of this fantastic new deli. I am sure my hon. Friend will be stocking exotic produce, but will he be making an effort to stock local produce—the food that makes his area special?

[Simon Danczuk]

We will stock a variety of local produce. There will be some continental produce, but there will be traditional Lancashire produce too. It will be well worth a visit and opens a week on Saturday.

The first thing to say in a debate about small businesses is what a great contribution they make not just to our economy, but to our culture, our communities and the way we live our lives. As the hon. Member for Newton Abbot said, we need to spend more time celebrating the work of smaller businesses and the people who run them. It is these business people who are the backbone of our economy. They create the vast majority of jobs, and export their goods and products across the world. They are at the heart of innovation, which is often copied by larger businesses, and drive growth throughout the United Kingdom. They also carry the burden of worry and stress of managing risk every day of the week. We need to do more to celebrate what they do.

Small businesses are vital to our economy, but they are also vital to our society: they are one of the most powerful forces for social mobility. Academics and politicians often talk about the importance of education with regard to social mobility. That is important, but by starting and growing businesses people can thrive and prosper. They are vital in encouraging and establishing social mobility.

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[Huw Irranca-Davies (Ogmore) (Lab)]

I welcome this debate and compliment the hon. Member for Newton Abbot (Anne Marie Morris) and the other Members who secured it through the Backbench Business Committee.

I want to begin by putting a human face on this debate. Several people have talked about the definition of small businesses. For me, that definition could include Worgan’s in Llanharry, a small, family-run enterprise that started as a small gift shop selling various things for the local community, but which extended by opening a café in the next-door premises and then a mobile chip shop. The definition could also include the former Sony site in Bridgend. Sony went through a difficult time when the market for cathode ray tube televisions completely fell apart—when flat-screen televisions came in, those jobs quickly went abroad—but the management retained the skilled work force and rebuilt the business on the basis of high-end engineering and their massive expertise in design, engineering and manufacturing. Working alongside other companies, it has built itself back up and now has 500 employees onsite, 150 of whom work in 28 incubation companies—small companies, built up with the assistance of Sony expertise, working in digital media, graphics, television and many areas, and supported as they grow from micro-businesses into small businesses and, we hope, into the giants of tomorrow.

The definition of small business could also include Ferrier’s, a local estate agent on Commercial street, in Maesteg, where my office is based. It was established in 1918—by coincidence, that was the same year Labour first won the seat of Ogmore, so I hope we will both shortly be celebrating our 100th anniversary—and it has extended to open other outlets in Kenfig Hill and elsewhere. There is a wide range of businesses. I think of Cwm Tawel Yurts, a tourism enterprise in a beautiful little valley around Betws, and of the Food Box. Then there are two brothers on the Maesteg industrial estate who left my state comprehensive school, one going on to study applied sciences, the other, following a different path, management. They came back together and established a 3D engineering company that did all the things expected from 3D engineering, but which has also now extended into life sciences. It applies 3D engineering to the life sciences, uses 3D modelling in the development of things such as heart valves that grow organically within the body and it supplies tiny parts that help the space station run.

In talking about the 99% of small and medium-sized businesses, we recognise that they are diverse, which gives them some resilience; that they are fragile, as my hon. Friend the Member for Rochdale (Simon Danczuk) said; and that they need the right support structures in place to assist them to thrive and grow.

[Mr Bain]

We have a burgeoning life sciences sector in Glasgow, too. Does my hon. Friend agree that the National Audit Office made a powerful point when it said that there is a potential funding gap of some £22 billion in the finance available to small businesses between now and 2017. Would it not help small businesses in his constituency and mine if the Government did something with the banks to help plug that gap?

[Huw Irranca-Davies]

My hon. Friend makes a valid point. There has to be cross-party agreement to take this forward and to ensure that finance is available.

Let me mention one stark figure. Even though there are signs of optimism in some parts and some sectors of the Welsh economy, a recent survey of members of the Federation of Small Businesses in Wales showed 55% of them reporting that credit was unaffordable, while 65% said it was not only unaffordable but completely inaccessible. The idea that these businesses can grow by getting affordable and accessible lending is simply not happening, which is a tragedy.

[Simon Danczuk]

Is my hon. Friend aware that some small businesses are afraid of approaching their banks about credit or getting an extension of their overdraft because they fear that the banks will rein things in and make it even more difficult for them?

[Huw Irranca-Davies]

Yes, indeed. There is a big argument not only for more localisation of the traditional banks, but for the regional bank model that Labour Members support. When I made the point earlier that that model should not be bureaucratic and civil service-driven, I was speaking from experience based not only within this country but in other European countries. That model works best where it is very locally focused and entrepreneurial, with managers of the account streams fully understanding the businesses with which they deal. Access to finance is indeed a big issue.

I will not go over business rates again, as others have done so, but it is a real issue. I believe that the proposal from Opposition Front Benchers to freeze and then reduce them is a good one. As to Ministers saying we never did it, I simply say that the proposal is there on the table for them to support if they want to do so.

I turn my attention to one area about which I have particular knowledge and concerns. I refer to supporting small businesses where the potential for employment growth is the biggest—namely, through the application of green technologies, such as solar power or insulation for greater energy efficiency in homes, and so forth. I was intimately involved in the incubation phase of the Energy Bill that the Government brought forward, and I pointed out some of its potential pitfalls. If it had succeeded, however, particularly the green deal with the associated energy company obligation, it could have provided massive incentives for tens of thousands of small businesses. I am talking about all those people who have been installing loft insulation for years and those who have switched to installing solar panels with the feed-in tariffs. They could have had a new opportunity to take on apprentices, perhaps young people in my area who cannot find jobs. The green deal work could have produced a massive expansion of the sector.

We had to highlight the problems, however. We noted that the finances did not seem to work and that it might not be possible to sell the green deal to people. Consumers are pretty intelligent people who, as they look at it, will run a mile. We said, too, that there were rogues out there who would blacken the reputation of the green deal before it even took off and, with deep regret, I have to say that that has now come true. The Minister put forward an aspirational target of 10,000 installations linked to the green deal. That would have provided one of the biggest employment boosts in the small business sector right across the country and in every single community—rural, urban or whatever. Out of that 10,000, we now know that there have been just over 200 installations. It does not matter how many installations were in the plans; they have not taken place.

We are looking to find agreement on areas that require better support—through access to finance, for example. We might have different solutions—how best to enhance access to finance, to reform business rates and so forth—but a proposal that would make a material difference tomorrow, if we got it right, is dealing with cold homes and businesses that have runaway energy costs. That means getting energy-efficiency right and getting the energy installations right. We are failing—miserably—and companies are shutting their doors on the scheme. It is a tragedy. I am sure that the Government have all the best will in the world to turn this around, but we see no sign of them putting measures in place to achieve that.

There has been considerable agreement in today’s debate about the importance of small businesses. Some will choose to stay small, but many will grow and grow, and they will thrive. Tata Steel and Ford in south Wales have a huge impact on the local economy, but they are dwarfed by the impact of all the small and medium-sized businesses that need our support.