Family Businesses: Contribution to Local Communities

John Stevenson Excerpts

Tuesday 20th December 2022 Westminster Hall

[Mr Laurence Robertson (in the Chair)]

Good morning. It is quite warm in here, so if Members wish to remove their jackets, they are free to do so. I remind Members that if they wish to speak they need to stand in order to catch my eye. I call John Stevenson to move the motion.

[John Stevenson (Carlisle) (Con)]

I beg to move,

That this House has considered the contribution of family businesses to local communities in the UK.

It is a pleasure to serve under your chairmanship, Mr Robertson. I am grateful to have the opportunity to debate the importance of family businesses and their contribution to our national economy, our local economy and our communities up and down the country. I appreciate that this might not be the best week for this debate, given that we are approaching Christmas, but this is a really important time of the year for many businesses, particularly in the hospitality industry, and an important time of the year for family businesses to succeed.

I want to put on the record my thanks to the Institute for Family Business for its support and the research that it has carried out into the success of family businesses and also the challenges that many of them face. The institute is the secretariat to the all-party parliamentary group for family business, which I chair, and it has been very supportive for all the time that I have been chairing that APPG.

I want to start the debate with a simple question: what exactly is a family business? There are many different definitions and people will have their own interpretations. The Institute for Family Business set out its own definition in its most recent report, but for me it is quite simply the involvement of family in a business. This can be a sole practitioner—an individual who has set up their own business and is effectively a one-man band. It could be a husband and wife team. The wider family and children could be involved. It could involve other members of the family such as cousins, and of course it could involve different generations. But it is also about the level of control.

When we look at a corporation, we look at the shareholding of that company—how many shares are owned by the family and how many are external. We look at who effectively controls that business. A family business might not always be run by members of the family. It might have independent management or a mixture of family members and outsiders. Each can be equally successful. They all have their own challenges, but that does not detract from the fact that they can be just as successful as a purely family-run business, or as a mixture or with outside control.

The real challenges come when there is third or fourth generation involvement in a family business. They all present different concerns. There are intergenerational matters, and shareholding or ownership of a business can be widely spread among many members of the same family.

What about the sector that the business is involved in? It is estimated that there are around 5 million businesses in the United Kingdom, all of varying sizes. Family businesses make up 85% of that 5 million, so effectively our economy is dominated by such businesses both at the national and local level. I will come specifically to the local level in due course.

The size of the businesses varies enormously. Most are microbusinesses—small one-man bands or small family units. Equally, there are some enormous businesses that have grown from small start-ups. Warburtons is a good example. Historically we could look at Mr Barclay or Sainsbury’s as examples of small businesses many years ago that became huge conglomerates and very large and successful businesses.

[Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)]

I thank the hon. Gentleman for securing this extremely important debate, because family businesses are the bedrock of our local economies. In my own constituency, Glencairn Crystal started as a local family business. It won the Queen’s Award and went on to develop the iconic Glencairn Crystal whisky glass, which is now internationally renowned. Does he agree that, with the correct package of support, financial innovation, contribution and development from Government, family businesses can become iconic and international successes?

[John Stevenson]

The hon. Lady is right. It is always lovely to hear Members promoting family businesses and demonstrating their success. She also highlights an issue that I will come to about how we can ensure they get the support that they need to be successful.

I have talked about family businesses being small or large, but we must also remember that there are some huge international businesses, including Mars and McCain. An interesting general observation is that many large, international family businesses are invariably owned from North America. That indicates that family businesses are not just part of our economy but part of international economies across the world.

Family businesses are involved in all sectors. The obvious one is transport, with large transport businesses up and down the country displaying their logos. They are also in retail and manufacturing. One particular area that features a lot of family businesses is the food and drink sector. That is a very popular sector in which to set up and grow a family business. That has a knock-on impact on the hospitality industry, which has a large number of small family businesses.

[Margaret Ferrier (Rutherglen and Hamilton West) (Ind)]

Last week I went to the opening of a state-of-the-art factory by Equi’s Ice Cream in my constituency. That business has been around for a century, with its ice cream sold locally as well as in a number of supermarkets such as Morrisons, Co-op and Asda, and even as far away as Texas. Does the hon. Gentleman agree that such family-owned businesses not only contribute to our communities but are great ambassadors for them?

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[John Stevenson]

Absolutely. It is always lovely to hear individual businesses being highlighted by Members of Parliament. That demonstrates that family businesses are not just in one constituency but spread across the whole country. We need to be behind them in our local communities as well as nationally.

From our perspective as Members of Parliament, the importance and contribution of family businesses should not be underestimated. They matter to our national economy. Family businesses employ nearly 14 million people; over 50% of all private sector employment is in family businesses, so the majority of people are employed by a family business. It is estimated that they account for 44% of our GDP. Just think of their contribution to the Treasury, which is vital for our public services.

Family businesses are clearly the backbone of local economies up and down the country as well as nationally. Think of a small family business and the contribution it makes to the Exchequer. If it employs five people, that means five families supported by that business. The contribution goes beyond that, with the payment of national insurance for those five employees, and of corporation tax. It will probably collect VAT for the Exchequer and pay business rates at the local level. It makes a vast contribution, not just to the local but to the national economy. That is replicated up and down the country.

Carlisle is a good example as the home of national and international businesses which employ a lot of people and make headlines locally because of the number they employ and their brand names, such as Nestlé and Pirelli. But drilling down, what matters in many respects is the local family businesses. Story Construction is a first-generation business now moving into the second generation, employing in the region of 500 people. It was set up in the last 30 to 40 years and makes a significant contribution to local construction and to the rail construction industry. Pioneer Foods, a food hospitality business, is into its third generation of making a contribution to Carlisle’s economy. Thomas Graham is in its fifth generation of local leadership.

We have those international brands and companies, but I have just highlighted three individual businesses at the heart of our local economy that employ a lot of people making a vital contribution. They are now into their second, third and fifth generations. The individuals who lead those businesses are also vital to our local communities. They provide leadership. They are often respected, and local people will look up to them and may aspire to be similar to them, and to set up their own businesses in due course.

[Wendy Morton (Aldridge-Brownhills) (Con)]

My hon. Friend mentions the contribution of small businesses to the local community. What I often see is something that is almost invisible. Does my hon. Friend agree that business owners often support community events, such as the recent Christmas tree festival in Aldridge?

[John Stevenson]

My right hon. Friend is getting ahead of me. She is absolutely right, and I will come to the contribution that such businesses make to local communities. There are, of course, similar factors for family businesses at the national and local level: the high employment levels in family businesses, the investment that we want to see, and the tax contribution that they make both locally and nationally, which I have already highlighted. I have set out what I think is a powerful demonstration of the importance of family businesses; however, some people would ask what the difference is between a family business and other corporations. Are they not in many respects just the same? I accept and recognise that they face many similar issues.

At present, energy costs are obviously affecting many businesses, both those that are family run and those that have other structures. It is a serious issue right now. On taxation rates, what corporation tax is set at matters to both family businesses and others, although dividend tax and capital gains tax can have a particular influence on family businesses, because of the way they structure themselves and the way the families take profits out of the business. Skills matter to any corporation, as does getting the right staff and ensuring that the right training is in place. That also matters to a family business, which needs to recruit in exactly the same way as any other. Regulation affects different sectors in different ways. I have already highlighted the importance of the food and drink sector, on which regulation clearly has a huge impact.

There are, however, a number of issues that in my view are unique to family businesses. The obvious one is succession. Passing the business on to the next generation, or indeed between families, can be a challenge. Who should inherit? Who takes over? Can the older generation let go and allow the next generation to take the reins of the business? If there are cousins, or two or three generations, involved, how is that dealt with? Those are some of the principal challenges for family businesses, and the Institute for Family Business spends quite a bit of time helping to support family businesses with them.

There are additional challenges with financing and growing family businesses. How do we ensure that a family business can grow in exactly the same way as other corporations? In my view, family businesses have a real strength, in that they can draw financial support from members of the family, which can help with that growth. It can also be a weakness, because they need to attract external finance to grow. Family businesses must be willing to accept outside help and allow external influences to support the business in its attempt to grow. Families have to accept the risk that they may be taken over, or that their influence in the business will be diluted by external investment from other parties.

Family businesses also have some key strengths, such as resilience. They often deal with recessions better than most other businesses. They are flexible and more adaptable in terms of hours of work. A person is more likely to want to work longer hours in their family business to ensure that it will cope with any bumps on the road. Family businesses also take the long view. It is not just about the next set of financial figures; it is about the next generation. That can lead to long-term investment, rather than a short-term view about making profits here and now. The stats suggest that often staff are loyal, and remain with such businesses for far longer than they would otherwise. Also, family businesses are invariably very loyal to their staff, who in many cases have worked for them for many years. That creates a real element of stability.

[Kevin Foster (Torbay) (Con)]

Does my hon. Friend agree that family businesses showed that loyalty to staff during the pandemic? For example, a number of tourism businesses in Torbay decided that the family would take no wages to ensure that staff could be paid, which we would not see in many other corporations.

[John Stevenson]

My hon. Friend makes a valid point. We saw that in the pandemic, and we often see it in recessions as well. Family businesses are more resilient and stay loyal to their staff, and that gets them through in a way that many other businesses would not necessarily tolerate. Another interesting aspect of the research from the Institute for Family Business is that there is more female involvement in family businesses than in general in business; we should research more why that is the case.

Family businesses are often the start of something. They start as very small businesses, then continue within the family, or at least owned or controlled by the family, but with external management; or they dilute and float on the market. I do not think that selling out is a negative, as the business—what the family have created—is successful and can continue to thrive but in a different environment and under a different structure. Life does move on.

I am a solicitor, and work in a practice that was set up in 1805. Until 1916, three generations of the family were involved. Since then, there has been no family involvement, but the business is still going strong today and it had that family involvement for those three generations.

Where I think family businesses provide an extra layer of benefit is in terms not of the economy but of the community. Family businesses are often embedded in their community. The children go to local schools. The business employs local people. The families want the local area to succeed because they live in it and socialise in it—they are part of it. They often get involved, as school governors and in charities and other community organisations. If they are brave, they may even get involved in local politics; they may get involved in other things, such as the local enterprise partnership or the chamber of commerce. They are invariably respected leaders in the community—people want to emulate them. That support to their local areas is a real strength of family businesses and the leaders within them; that element does not show up in national statistics, but it is vital to the success of our communities up and down the community.

I am very conscious of the lack of Government recognition for the importance of family businesses. I think everybody here would recognise that they are the backbone of our economy and a source of strength for our communities. Is there more that the Government could do, on the growing of these businesses, and in understanding their nature, the challenges they face and how we can ensure the investment and finance for them so that they will grow, expand and become the big corporations of tomorrow?

There is also the skills agenda. Training opportunities can be difficult, as many of these businesses are small or micro businesses that find it challenging to train staff and to get the skills they need. What can the Government do to support them?

There is also a need for general advice, for not just financial but succession planning. Quite often, family businesses feel they are operating in isolation. That is why organisations such as the Institute for Family Business are so important, because they help with that sort of advice, but many businesses do not get it. I wonder whether the Government could do more to help.

There is also the issue of profile. Leaders in the community, as I have already said, often come from family businesses. Some, though not many, have a national presence. Sadly, trust in business is at a low ebb right now, but family businesses often have a far better reputation. It may be that the Government should be seeking to exploit that in a positive way. We need businesses to succeed. We should celebrate their successes. I think people often feel more comfortable celebrating the success of a family business than the success of what they perceive as a faceless corporation. Maybe the Government need to associate business more with the family side of things, demonstrating the importance and the vital contribution family businesses make to our society, as well as to our economy.

In society, families really do matter. In business, family businesses are absolutely vital. Let us celebrate their success, but let us help them more than we do to ensure that they continue to be the backbone of our country and central to our communities.

[Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)]

It is a pleasure to serve under your chairmanship, Mr Robertson.

As a Scot myself, let me say that it is a pleasure to hear a canny Scot—the hon. Member for Carlisle (John Stevenson)—taking us through this important subject; I always think a gentleman from Aberdeen would have a particularly good grasp on the vital need to make ends meet and run a tight ship.

I ran my family business for eight years, and my brother runs it now. It was a cheesemaking business that grew out of small dairy farm on the shores of the north Firth. For eight years, I had to juggle the profit and loss account and know how to do a VAT return—I had to do all that stuff, and it was invaluable experience. I will not go any further, because I cannot plug a family business too hard, but my brother continues in the same vein and I am very proud of him.

Let me expand on the points made by the hon. Member for Carlisle. The local contribution of family businesses is crucial. They tend to use the local bank: businesses in my constituency deposit large amounts of money in the local branch and help keep it open. They mostly use a local solicitor, and that equates to jobs in the local area. They use a local estate agent if the need arises, and local shops. They rely on their reputation, as the hon. Gentleman hinted at; local businesses do not want to make a mess of things locally, because it is on their own doorstep. Those are the key things they bring to their areas.

No local business will survive if it cannot balance the books and get it to work. That expertise, as the hon. Gentleman said, makes a huge local contribution, in terms of the chamber of commerce, local government and so on. As a passing aside—this is as much about my party as any other party in this place—we could do with more local businessmen in the House of Commons. If we go back 100 years, there was a time when many Members of the House of Commons had made their fortune and knew what they were talking about when it came to the big issues. That would be no bad thing. But that criticism is not directed at any one party; it includes mine.

[John Stevenson]

The hon. Gentleman makes a really interesting point about getting people with business experience here. Does he agree that, although traditionally important local businesspeople became members of the council, we do not see that today, and that is a big loss to us all?

[Jamie Stone]

That is a very apt point. I was elected to Ross and Cromarty District Council in 1986, which was a long time ago, and I have seen the sort of people who become members change dramatically in my lifetime. When it comes to local government finance, to have hard heads on the finance committee does not half help things.

Nurturing local businesses sits within a wider framework, which the hon. Gentleman touched on. He mentioned advice and access to finance as and when needed. Many of us feel that the day of the local bank manager has gone—the man or woman who could talk to the businessman and say, “Okay, that is a good idea. I’m willing to offer the following finance.”

In my part of the UK—my very far north constituency—a local business will do well and thrive if it has the support to which I alluded. We have an organisation called Highlands and Islands Enterprise, which was conceived by the Wilson Government in the 1960s, and did much good work over the years. I am sad to say that it is not what it was all those years ago. It is weaker, through no fault of its own; it is a small organisation and does not have the ability to offer advice and target finance as and when necessary. A lot of other infrastructure is required in our constituencies—in my own case, an airport, rail links and road links. A hardy perennial is the NHS, and I often raise the issue of maternity services. If any one of those vital key support networks is not up to standard, that sadly makes life harder for local businesses, particularly when it comes to recruitment or expansion.

I will close with an example. In Caithness we have an engineering firm called JGC Engineering, which is owned by the Campbell family. It is a third-generation firm that grew out of a blacksmith business, and it makes clever stainless steel stuff for the nuclear industry, Dounreay and others. As right hon. and hon. Members know, I have often talked about the potential of a space launch coming to my constituency—and I think it is just around the corner. A company such as JGC Engineering can use that but, if it does not have the infrastructure links, the back-up and so on, it will be harder for the company when the big day comes and it can go for those contracts. It is a basic point, and I make no apology for emphasising it again and again.

It remains only for me to wish all right hon. and hon. Members the compliments of the season, a very happy Christmas and a prosperous—in the business sense—new year.

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[John Stevenson]

I thank the Minister for his contribution. He is a very unusual Minister in Government terms, in that he is a round peg in a round hole.

I also thank all colleagues for their contributions. It has been very interesting to hear about the significant contribution that family businesses make not only to local economies but—and this is equally important—to local communities up and down the country. Some 85% of all businesses are family businesses, and if I were to give one challenge to the Government on growing the economy, it would be to recognise that it is absolutely vital that those family businesses grow, expand and become much bigger, such that they contribute not just locally but nationally. That is how we will grow our economy. There needs to be greater recognition of the importance of family businesses, and we need to ensure that they grow, expand and receive support.

Finally, I follow the Minister in wishing everybody a merry Christmas and a happy new year. I hope that 2023 will not be as exciting as 2022.

[Mr Laurence Robertson (in the Chair)]

I also wish everyone a happy Christmas and a very peaceful new year.

Question put and agreed to.

Resolved,

That this House has considered the contribution of family businesses to local communities in the UK.