Manufacturing and SMEs

John Stevenson Excerpts

Wednesday 4th September 2013 Westminster Hall

[John Stevenson (Carlisle) (Con)]

It is a pleasure to serve under your chairmanship, Dr McCrea. I hope this will be a worthwhile and interesting debate.

Today we could discuss Government support for small and medium-sized enterprises across all sectors: services, construction and, of course, manufacturing. Indeed, all sectors and industries will have many similar issues and problems—lending, taxation and employment law, to name but a few. There are certain issues, however, on which there are significant differences between the sectors. Indeed, even within sectors there may be different needs, requirements and problems that warrant different solutions. The reality is that it would be easy to have a debate on each sector, and probably many debates within each sector.

Today, however, I will concentrate on the manufacturing sector, the matters that apply to that sector and what the Government can do to support manufacturing, to enable the sector to grow and to ensure that it makes a larger contribution both to local economies across the country and to the national economy. I will address the help that the Government can give to all manufacturing businesses, including larger businesses that seek to develop new products or deal with EU regulation.

[Sir Tony Cunningham (Workington) (Lab)]

I obviously welcome Government support, which is very important, but companies can often help each other. Will the hon. Gentleman say a little about the supply chain, which is so vital to many small and medium-sized enterprises, particularly in Cumbria?

[John Stevenson]

I completely agree. Companies can help each other, particularly within the supply chain, but today’s debate is primarily about the Government’s role in helping to support businesses, both large and small.

The Government can help smaller enterprises that are seeking to expand and start-ups that need very basic advice on how to get going, and they must recognise that businesses of all sizes have their own individual roles to play. The Government have stated that they want to rebalance the economy—a laudable aim that is clearly supported across the House. Arguably, the Government want to go further and see growth in the country within an economy that is far more structurally balanced between the various sectors and which has a larger manufacturing sector, in particular.

Not only the economy but the country needs to be rebalanced. The country needs to move away from an over-reliance on a dominant financial services sector that is so overwhelmingly run from and centred on London. London has been, and is, a huge success, but there is a danger that it adversely affects the rest of the country. London dominates politics, the media, finance and business. It is almost overpowering, which can cause policy makers to forget or overlook the many other important contributors to our future prosperity.

[Mr Andrew Smith (Oxford East) (Lab)]

I congratulate the hon. Gentleman on securing this enormously important debate, which is of concern to us all. Does he agree that, as part of the culture shift that he rightly says is necessary, more needs to be done in schools and colleges and through the curriculum to encourage able young people—sometimes those of a more practical, rather than academic, bent—to have high self-esteem, to set their targets high and to realise that there are good jobs out there for people who make things?

[John Stevenson]

I do not disagree. The improvement in the view of apprenticeships is helping enormously, because people now view apprenticeships as a serious career choice, rather than people always going off to university.

We need to move to a more balanced economy so that we become a balanced country in which manufacturing has a central role. In my own county of Cumbria and constituency of Carlisle, we still have a very strong manufacturing base. There is defence, power, engineering and food, and in Carlisle itself 20% of the local economy is still based on manufacturing.

In my constituency, we have large players such as Pirelli, Nestlé and McVitie’s, and there are also smaller players that are significant locally such as Carr’s Milling Industries, Clark Door and Mallinson Fabrications. For both local and national reasons, I am delighted that the role of manufacturing is back on the Government’s agenda. A huge amount of credit must be given to the Government and to Parliament for achieving that change.

We all acknowledge that there has been a steep decline in manufacturing over many years, which has created a number of problems. Obviously, there is the balance of payments issue, because we are simply not paying our way in the world. The decline has also created a skills problem. Many skills have gone overseas, with some potentially lost for ever. We have an ageing work force in some sectors, with the food and drink sector being an obvious example of where many thousands of people need to be recruited over the next few years just to stand still.

The decline in manufacturing has created a problem for the long-term success of our economy. Thankfully, there is growing recognition that we, as a nation, need to produce goods, as well as to provide services. Growth in our economy can only be helped by the expansion of industrial production—the rise of the makers once more. Such a revival would immediately help to correct our trade imbalance, and more tax would be paid, so the Government could start to balance their books.

[Jeremy Lefroy (Stafford) (Con)]

Does my hon. Friend recognise that, with an increase in manufacturing, we would also see a positive knock-on effect for services? Manufacturing and services cannot be split from each other; one gives rise to benefits for the other.

[John Stevenson]

Yes, I agree. Ultimately, we want to see all sectors of the economy grow, and they are all interlinked. Clearly, if manufacturing improves, the services side will also benefit. The reverse does not always work in quite the same way; there is a greater benefit for services when manufacturing succeeds.

As for my personal involvement, I have to confess that in my previous life I had little knowledge of or involvement with manufacturing. My constituency has a significant number of employers in the manufacturing sector that make a major contribution to the local, national and international economies. I recognise the importance of those employers, and I want to support them wherever possible. That is why I became heavily involved with the all-party group on food and drink manufacturing, which is well supported across the House and which I now chair, and with the associated all-party group on manufacturing—I am delighted to see leading members of that group here this afternoon. There is much overlap between those all-party groups and others, and it is useful to have such differentiation because it demonstrates that although there are many similarities between manufacturers, there are also many important differences.

[Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)]

I also congratulate the hon. Gentleman on securing this debate. He will already have realised that there is much cross-party agreement on the importance of manufacturing. I have seen that importance in the past fortnight, when I visited Burgon & Ball in my constituency. The company has been in business for 280 years, and with the help of the Royal Bank of Scotland and the growth fund I hope it will be here for another 280 years.

Will the hon. Gentleman confirm that part of the difficulty for rebalancing and manufacturing is the continuing culture of our banking system? To be fair, the Department for Business, Innovation and Skills endeavours to do something about the banking system, which focuses on short-term returns from manufacturing and business, rather than on long-term investment. We have turned the original intention of the banking system on its head. That intention, which is still reflected in the German model, is that banks are there to serve manufacturing and service industry development, rather than the other way around.

[John Stevenson]

The right hon. Gentleman makes a valid point. I assumed that many people would raise the question of lending, so I have specifically avoided it, but it is good that he has raised the issue.

My simple conclusion is that, if our economy is to rebalance and grow, and if our nation is to prosper, manufacturing must be central to that change.

[David Rutley (Macclesfield) (Con)]

I thank my hon. Friend for securing this debate. Manufacturing is critical to the economy, and he is making a powerful case.

Interestingly, the statistics show that not only is manufacturing vital to our economy but average weekly earnings in manufacturing are £557, which is second behind only finance and business services. Does my hon. Friend agree that that is good not only for the economy but for those who are fortunate enough to work in that important sector?

[John Stevenson]

My hon. Friend makes a valid point. People sometimes forget that in manufacturing there are many highly paid jobs—it is not a low-wage sector, as many think.

There are already signs that our economy is beginning to recover and that manufacturing is playing its part. In the food and drinks industry, exports are up to more than £12 billion; the manufacture of cars is now at its highest level since the 1970s; we are still a world player in pharmaceuticals; we are a leading nation in aviation; and this Monday there was the announcement of a significant rise in manufacturing activity—all welcome signs. It is easy, however, for parliamentarians and Ministers to get caught up in the larger, more glamorous companies with the sexier products such as cars and planes, rather than with the more mundane products, such as storage doors or food, even though those are equally important and often produced by SMEs.

In reality, SMEs are central to the future success of manufacturing, whether as part of a supply chain or as a stand-alone entity with a local or national market share, whether innovating and expanding alone or as part of the next national or international conglomerate. The purpose of today’s debate is to examine what Government can do to support, encourage and enhance the SME manufacturing sector. Government support, assistance and encouragement are critical to the success of our manufacturing sector. The debate is about a few specific issues whereby a role for Government can help businesses of varying sizes to prosper.

Other Members will have their own ideas, as will Government, lending being the obvious one—it has already been referred to, but I am avoiding lending today, because I am sure that others will touch on it. It is important that we all share ideas, to ensure maximum benefit for the manufacturing sector and the industry. It is a given that Government should create an environment in which all businesses can succeed: a tax regime that is friendly, rewarding and supportive; regulation that is sensible and proportionate and ensures a level playing field for businesses to work and compete on; and the confidence that it is important for Government to give to business, so that they are supportive and consistent, without any big surprises for industry.

I want to touch on four specific key areas; first is the definition of an SME. According to European Union law, the main factors determining company size are the number of employees, the turnover and the size of the balance sheet. Those factors can then be divided: micro-businesses have fewer than 10 employees, turnover of less than €2 million or a balance sheet of €2 million; small businesses have fewer than 50 employees, turnover of €10 million or a €10 million balance sheet; and medium-sized businesses have fewer than 250 employees, turnover of €50 million or a €50 million balance sheet.

There are, however, varying definitions in the UK, with one under the Companies Act 1985 and a different one under the business bank scheme. For the purposes of research and development schemes, Her Majesty’s Revenue and Customs defines SMEs in a different way again. In fact, depending on which definition is used, an SME can have anywhere between 10 and 500 employees or a turnover of between £1.7 million and £86 million.

The real issue is that the actual definition of an SME is not helpful. It would be far better to break the definition down into different sizes and types of businesses with their own reference. A clearer idea of exactly what type of businesses we are discussing is necessary, rather than lumping them all together.

More definitions would be beneficial and help to target support to the right businesses in the right circumstances. For the manufacturing sector, that would demonstrate and recognise the importance of companies and raise their profile, and identify a sector as important in its own right. Any definition needs to acknowledge that larger manufacturing companies often have little in common with smaller ones and they should therefore not necessarily be linked together.

Size and numbers matter: they have an impact on how businesses structure themselves, how they function and what type and level of support they seek. I certainly find it hard to equate a manufacturing company with a turnover of several million pounds and, for example, 200 employees, with a two-man engineering business with a turnover that does not even exceed the VAT threshold. A better group of definitions, certainly in the manufacturing sector, would help to simplify a business’s ability to access the correct support, help and guidance that it may be seeking. That might also help Government to steer a business of a particular size or industry towards the appropriate support.

My second issue is simply what support there is, and whether it reflects the actual needs of manufacturing. What can Government actually do? What is the real support and help that Government can give to the manufacturing sector? Clearly, small businesses have their own particular issues; large businesses that want to expand are likely to have different requirements and problems; and there are individuals who want to start their own small manufacturing businesses.

A significant number of issues therefore need to be addressed for businesses of different sizes and complexity within the manufacturing sector: strategic advice and business plans will vary depending on the size of the business; procurement, too, is different for small and large businesses; there is involvement with UKTI—UK Trade & Investment—for exporters; skills and qualifications depend on the needs of the different sizes of businesses; there is the issue of funding, grants, loans and, as mentioned, banking facilities; there is involvement with trade federations, because larger organisations invariably hold greater sway and influence, or relations with the chamber of commerce; there is legal, accountancy and intellectual property rights advice; there is dealing with relevant regulation, because cars, for example, are very different from the food industry; and, equally important but sometimes forgotten, there is succession planning.

I appreciate that the Government are helping where they can—the manufacturing advisory service is an example—but there needs to be accessibility and relevance to the manufacturer. A common complaint is that the Government do not understand the user, and that their support is inaccessible or inappropriate. I appreciate that the amount of such support will vary considerably.

Larger manufacturers will contact Ministers or officials and have an ongoing dialogue. They are more likely to work through the trade organisations, and many will have the resource to research matters or to take paid advice. To be honest, a small manufacturing business in Carlisle with five employees is unlikely to contact central Government, while a 200-employee company with a £30 million turnover may well do so. Often, however, the smaller businesses have the greater needs, but they find it more difficult to access such help from Government.

I acknowledge that the Department for Business, Innovation and Skills is having some success. The best example is the R and D credit uptake, which has been welcome and demonstrates a successful policy and implementation. My concern, however, is that much of the effort is not as effective as it could be for many businesses. AXA Business Insurance carried out a study in the UK suggesting that many are unaware of the initiatives designed to help them. Darrell Sansom, the managing director of AXA Business Insurance, said:

“The numbers of small businesses in the UK continue to climb rapidly, but it seems that many could be missing opportunities to help their business along the way through a lack of awareness of the support that may be available to them.”

That leads me on to my next two points. Talking about government can be slightly misleading. What do we actually mean? Which aspect of government is the most appropriate? Today, I am clearly ignoring the EU, but we still have central Government as well as local government. There are clear issues with central Government: where to go, who to talk to and what Government should be doing. What advice and level of support should they be giving? That applies equally to local government, which really does matter. In many respects, the local council matters more for small manufacturers and businesses than central Government.

[Sir Tony Cunningham]

Does the hon. Gentleman agree that local government—local councils in particular—should be proactive with SMEs, rather than reactive? Instead of small businesses coming to the council and saying, “We have a problem or an issue”, councils should be going out and looking for ways in which to support local businesses.

[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.