Reducing Costs for Businesses

Jonathan Reynolds Excerpts

Tuesday 11th January 2022 Commons Chamber

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I beg to move,

That this House recognises the strain that businesses are under following a difficult Christmas period and two years of disruption during the covid-19 outbreak; notes challenges are more severe in some sectors; regrets that businesses are struggling with increasing energy costs, high inflation, low growth and higher taxes as a result of the Government’s long-term failures and lack of adequate support; and therefore calls on the Government to reform business rates, to alleviate the debt burden by allowing businesses flexibility on Government loans and to implement a contingency fund to support businesses with high energy costs.

Our motion highlights the strain that British businesses have been under over a difficult Christmas period and acknowledges the further challenges that they will face this year. Most of all, I hope that it will facilitate a discussion about what this country needs to allow British businesses to grow and succeed, in order to ensure our and their future success.

I hope that we can take a moment at the beginning of the debate to recognise the toll that the recent challenging trading environment has taken on many people. When the shadow Chancellor and I met a wide range of businesses just before Christmas, I was struck by the impact of the pandemic on the mental health of many of the people present on the call. The uncertainty and the constant need to reinvent business plans and respond to changing consumer behaviour brought on by the pandemic have taken a toll on many people. The Government’s press conference just before Christmas, in which people were advised not to go out but no support package was offered alongside that advice, was genuinely very difficult for people. It was because of the testimonies we heard that day that we were so insistent that support had to be offered before Christmas. I am pleased that the Government changed course and recognised that additional need.

I am sure that we will hear from hon. Members in this debate the effect of that short-term pressure on businesses in the areas they represent.

[Alex Cunningham (Stockton North) (Lab)]

Energy-intensive industries, such as those on Teesside, are under the cosh when it comes to the cost of gas, and not just for energy but as a feedstock in the production of a wide range of goods. Does my hon. Friend agree that without action on the highest prices in Europe, on gas transportation costs and on carbon costs, many companies could fail, costing thousands of jobs?

[Jonathan Reynolds]

I absolutely agree with my hon. Friend, who has put his case as he always does. I will mention energy-intensive sectors later in my speech, but the broader point is that the medium and long-term pressures facing businesses do not look much better than the short-term pressures that they have just come through.

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[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

rose—

[Jonathan Reynolds]

I am conscious of your warning, Mr Deputy Speaker, but I will give way to a couple of hon. Friends.

[Janet Daby]

Rising energy prices have been described as an existential crisis for small businesses in the hospitality sector. Does my hon. Friend agree that the Government must offer support to businesses in paying their energy bills immediately?

[Jonathan Reynolds]

Very straightforwardly, yes. We will talk about some of the specific proposals that the Labour party has developed to help alleviate that pressure.

[Catherine McKinnell]

Like many colleagues, I visited many small businesses in my constituency just before Christmas on Small Business Saturday. Although they were really pleased with the support, they also described the immense challenges they face and have faced over the past couple of years. High energy bills and inflation are clearly having a big impact, but it is set to get even worse with the increase in national insurance we are expecting in a matter of months. Surely my hon. Friend agrees that the Government cannot expect businesses to keep shouldering extra burdens without putting more support in place.

[Jonathan Reynolds]

My hon. Friend is right. There is already a cost of living crisis gripping the country, and it has been brought on by the frightening increases in energy costs and inflation following a decade of poor Government decisions.

It is obvious that this requires a response from the Government. Surely they cannot be considering allowing the average energy bill to hit £2,000. Surely they cannot be willing to see industry halt production or to have inflation hit double-digit figures. Frankly, it has all gone a bit Ted Heath. Where are the Government?

In contrast, we have made it very clear how Labour would act. We would take VAT off fuel bills. We would take off the supplier of last resort costs, too, and we would increase both the amount and the eligibility for the warm homes discount. I regret that Conservative Members have said they cannot vote for that, because Labour’s plan would have saved the average household £200 and the worst-hit households £600. The Government have already rejected that plan today, so please let us hear the alternative. It feels like the Government are asleep at the wheel, or perhaps they are just too bogged down in constant crisis and scandal to get the grip our economy needs.

[Mr Richard Holden (North West Durham) (Con)]

The hon. Gentleman is setting out a case, but the crucial thing is that the Government have a plan and he has not set out an alternative. So far the alternative sounds to me like extra borrowing. If it is not extra borrowing, where will he get the money to do everything he proposes today?

[Jonathan Reynolds]

The hon. Gentleman is more astute than that. He will have seen the plan to take revenue from the Exchequer windfall and the VAT receipts the Government have already received. We will increase money coming from the North sea oilfield with a windfall tax. He will know the North sea is one of the world’s most profitable jurisdictions in which to extract oil and gas.

There is something else the hon. Gentleman is not telling the House. If the Government allow the national insurance rise to go ahead, that alone is estimated to put two additional percentage points on inflation. He knows that will trigger a range of further Government expenditure, as well as causing major pain to households. With respect, I do not think he has a case.

The businesses I have spoken to this week are understandably worried that a squeeze on households of this scale will adversely affect consumer spending. In addition, as we have heard, businesses are directly affected.

[Matt Rodda (Reading East) (Lab)]

Will my hon. Friend give way?

[Jonathan Reynolds]

I will give way one last time.

[Matt Rodda]

I will be brief, as I appreciate the pressure on my hon. Friend’s time. He is absolutely right to point out the link between household expenditure and businesses. In Reading and Woodley many businesses in the hospitality sector’s supply chain have been badly affected. We have a thriving microbrewery industry, and these hard-working brewers are badly affected by rising energy prices, and they have been badly affected by the difficulties that affect the whole hospitality sector, but they have received less support from the Government. Does he agree that the Government need to listen to businesses and to think about the whole business community, not just certain parts of it?

[Jonathan Reynolds]

I love it when Members bring testimony from their own constituencies about specific sectors that have been affected. In the urgent question we had before Christmas, a lot of people mentioned coach companies, for instance, which were not at the time getting the national coverage they deserved. I thoroughly agree with the point my hon. Friend has made that businesses are directly affected by energy costs too, because they are seeing their bills go up while revenue goes down. That is clearly the case for energy-intensive industries, for which out-of-control energy hikes are simply unaffordable.

I am absolutely adamant that great British industries such as ceramics, glass and steel must have a future, but I recognise that that will not happen without political commitment. Many of us here are from places that take real pride in our industrial strength and heritage, and there has to be a future for these industries not least because, although their domestic carbon footprint is high, if we compare them with foreign competitors they are usually among the most efficient in their class. We cannot attempt to hit net zero simply by letting industry, emissions and jobs go overseas. That is why we have proposed a £600 million contingency fund to support energy-intensive industries, and we have laid out a plan for green steel, promising to fund pilot projects using hydrogen instead of coal for production and to joint-fund new equipment so the sector can grow.

However, if we want to keep these jobs and firms, it will require the public and private sectors to work together, and that brings me to the long-term challenges facing businesses because in many ways that is the most concerning picture of all. Right now, every economic indicator we have is heading in the wrong direction. The forecast for long-term growth is poor, productivity growth is appalling, wages are stagnant, and inflation is high and rising.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Will the hon. Gentleman give way?

[Jonathan Reynolds]

I will proceed.

I know many Government Members are uncomfortable hearing it, but it is true to say that the Conservatives have become a high tax party because they are a low growth Government, and there is no plan that I can see to change that. In fact, most of the decisions the Government take tend to make things worse. Raising taxes, failing to deliver on transport promises and tearing up the existing industrial strategy are not the ways to increase productivity, growth and wages.

We used to talk about the danger of industrial strategy being the Government trying their hand at picking winners. This Government’s strategy is better described as kicking winners. Not a week goes by without some Government Minister trying to drag our world-class universities into their desperate culture wars, instead of recognising the pioneering research that, among other things, gave us the vaccine. There is the Brexit deal the Government negotiated that delivered none of the market access our financial services industry asked for, and which has put bureaucracy and red tape in the way of British exports.

If we are to meet the challenges of the future, it will take a lot more ambition than this Government have so far shown, and it will require a change of course in several areas. It will require reforms—significant reforms—such as the replacement of business rates that we have proposed, and policies that incentivise long-term growth and investment over slogans such as levelling up, or unproven flights of fancy such as freeports.

[Mr Toby Perkins (Chesterfield) (Lab)]

I am grateful to my hon. Friend for giving way and really pleased to come in when he is talking about business rates because for both the hospitality sector and the retail sector—two sectors that are crucial in my constituency and so many others—business rates are one of the biggest barriers to growth and to survival.

[Jonathan Reynolds]

I am particularly pleased I gave way to my hon. Friend because I drive through Chesterfield when I am going from Stalybridge to London, and I pay tribute to him and his local colleagues for the work they have done. He is absolutely right that our promise on business rates is to replace an outdated system that does not work with one that is fit for the future. That means rebalancing rates so that bricks-and-mortar businesses do not lose out to online firms and making sure we encourage, rather than disincentivise, investments in new plant and machinery.

[Kevin Hollinrake]

Will the hon. Gentleman give way?

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[Jonathan Reynolds]

No, I am going to proceed. [Interruption.] Okay, go ahead—I give way.

[Kevin Hollinrake]

Just to make a point of detail about the context, the hon. Gentleman talks about runaway inflation in the UK, but does he accept that these are international problems? The inflation rate in Germany is actually higher than in the UK at 5.3%, and the inflation rate in the US is 6.8%, which again is much higher than in the UK. Shall we have some facts in this debate, rather than some of the rhetoric coming out from his speech?

[Jonathan Reynolds]

I always have time for the hon. Member, so I am not sad that I gave way to him. Yes, as we come out of the pandemic there are pressures on the global economy—we can see that in supply chains and in inflation. The question for the hon. Member is this: seeing that global picture, are the Government right not to take action, but to add further to the problem? We can see the impact on domestic energy prices, to which we are uniquely exposed because of his party’s Front Benchers. Is that the right course of action, or should we follow the route that the Opposition are putting forward, which I respectfully say is a much better proposition?

We are fortunate to live in a country where we have world-leading industries, but we agree that our productivity has stalled, that too much work is low-skilled and low-waged, and that prosperity is not shared in every community. With the right leadership from Government, I believe that many of our problems and challenges could be overcome.

The Opposition motion clearly sets out the action that the Government could take now: freezing and replacing business rates, saving the average shop or small factory £4,000 this year; alleviating the debt burden on firms, allowing them to pay back some Government loans when they are more profitable; not going ahead with the national insurance rise, which is a tax on jobs for employers at the worst possible time; and introducing a £600 million contingency fund for businesses, particularly in energy-intensive sectors, to address spiralling energy costs.

Where the Government have left the pitch, Labour will back businesses to keep British firms competitive. We need a Government who can match the vision and dynamism of British business, which we are ready to do. Labour is unashamedly a pro-business, pro-worker party. The leaders and entrepreneurs I speak to—[Interruption.] Quiet, Secretary of State! They do not want handouts from the Government; what they want is a level playing field and an environment they can do business in. They want the state to take the long view and provide the foundations that they need for success, and that is exactly what Labour will offer.

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[Chris Grayling (Epsom and Ewell) (Con)]

I refer the House to my entry in the Register.

I have great respect for the hon. Member for Stalybridge and Hyde (Jonathan Reynolds). He deserves to sit in the front rank of his party, but I have to differ from him when he says that this Government have provided inadequate support to the business sector. I take him back to 2010. Both parties have faced a crisis; Labour had the financial crisis, we have had the pandemic. Both parties have had to spend hundreds of billions of pounds to prop up the economy. But back in 2010, when I became Employment Minister, unemployment was 2.7 million and the pressures were all upwards. Today, in the wake of the pandemic, having just before the pandemic managed to get unemployment back to the levels of the 1970s, and having feared that the pandemic would take us back to where we had begun, actually we have ended up, as we are, I hope, coming to the end of the pandemic, with unemployment heading down towards 4% and hopefully below, and significant numbers of vacancies in our economy. That has happened because Ministers took the right decisions at the right time and targeted their support in the best possible way. It is not possible to do everything for everyone—

[Jonathan Reynolds]

I share the mutual respect that the right hon. Gentleman kindly outlined at the beginning, but he will accept, because this is his background, that there are 1 million fewer people in the labour market than pre the pandemic. Yes, unemployment has gone down, but of course the participation rate has gone down; it is not because those people have simply transferred across. The huge worry right now, and what is leading those shortages, is that participation has fallen. That is the true picture, surely, is it not?

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[Kevin Hollinrake (Thirsk and Malton) (Con)]

As the hon. Member for Bradford West (Naz Shah) knows, I entirely agree with her about the need for an independent Northern Powerhouse Rail that goes through Bradford from Leeds to Manchester. However, I do not agree at all with the shadow Minister, the hon. Member for Stalybridge and Hyde (Jonathan Reynolds). In his motion, he talks about

“increasing energy costs, high inflation, low growth and higher taxes as a result of the Government’s long-term failures.”

I have a great deal of time for him, but he is absolutely wrong on all counts. On energy costs, the wholesale price of gas has increased tenfold in little over a year, but that is an international issue, not domestic policy. I agree that we need to do something about it, but the tenfold increase is principally because of Russia and China, for different reasons.

Inflation is an international issue, too. As I have pointed out previously, the inflation rate in Germany is higher than that in the UK—it is 5.3% compared with the UK’s 5.1%. There is a slightly different calculation for the US, but the rate is 6.8% versus the UK’s 5.1%, so the hon. Gentleman is absolutely wrong again. He is also absolutely wrong about low growth. As my hon. Friend the Member for Grantham and Stamford (Gareth Davies) points out, the OECD says that the UK had the fastest growth in the G7 in 2021, and that it will have the fastest growth in 2022.

[Jonathan Reynolds]

I know that I am pushing my luck by intervening, but I am sure that the hon. Gentleman will not mind.

This is interesting, because when we had a global financial crisis, I do not remember Conservative Members highlighting global factors as a cause. On that point, he will know that we had the biggest hit in the pandemic; we fell the furthest. When we say that we have a projected high growth rate next year, it is because we are bouncing back. The long-term growth rate for this country is under 2%, and under the historical norm for each of the years that we have forecast for once we have recovered from the immediate hit of the pandemic. That is the point. That will not succeed in sustaining the living standards of this country, and the hon. Gentleman knows that.

[Kevin Hollinrake]

I agree with the hon. Gentleman on long-term productivity, but that is not what his motion says. It says “low growth”, which is absolutely inaccurate. Let us have some facts in this debate.

The hon. Gentleman is absolutely right on energy costs, and I think that we need to intervene. The Government are not doing nothing. They are consulting now on the right kind of measures—whether it is VAT for consumers, the warm home discount, or direct intervention in the business. It is absolutely right that we consult on those things and look at them properly. There are other issues as well, including labour costs, supply chains and other such things, the vast majority of which are international issues. Yes, of course, there are some Brexit issues, too, there is no doubt about it. [Interruption.] Anybody who voted for Brexit and thought that they were voting for the status quo was not reading the facts properly. The reality is that those things have to be dealt with, but they are short-term issues that will be resolved.

I say to the shadow Minister that it is the easiest job in the world to stand on the sidelines and criticise, which is what he is doing. [Interruption.] He is criticising higher taxes. How on earth would he pay for the huge amount of money that has to go into the NHS over the next few years to deal with the backlog? Would he simply borrow more money? That is what that money is for. There is also the fact that businesses are not even paying the higher taxes yet; they do not kick in until April. Again, the motion is entirely wrong.

Let me turn to what we should do. The motion mentions the reform of business rates; the solution of the hon. Member for Stalybridge and Hyde is absolutely deluded. A sixfold increase in the digital services tax would be passed straight to consumers and would not hit Amazon and others. It is absolutely wrong. He has no long-term detail on how he would reform business rates. In my view, we should scrap the business rates system completely. It is outdated—it is the wrong system for today—and business rates hit not just retail but lots of other channels and sectors. I would scrap business rates completely and find the £30 billion by adding that to VAT, because that would immediately create a fair and level playing field for all businesses that trade through whatever channel.

While the Minister is present, I press him to look at regional mutual banks, which I mentioned at Business, Energy and Industrial Strategy questions this morning. They can have a massive impact in lending to the productive economy to get the growth rate growing to the level we need it to be to pay off our debt.