Economic Growth and Employment

Julian Smith Excerpts

Wednesday 23rd November 2011 Commons Chamber

[Mr Umunna]

I completely agree with my right hon. Friend. Of course, another question for the Government is why they will not listen to business organisations that have been calling for action. The CBI is calling for infrastructure spending to be brought forward, the Federation of Small Businesses is calling for a one-year national insurance break for every small firm taking on extra workers, and the Federation of Master Builders would like a targeted cut in VAT to 5% for home improvements, maintenance and repairs. Business organisations, from those representing the food and beverage sectors to those representing businesses on our high streets, which are suffering, are calling for a reversal of this year’s hike in VAT. What do all those measures have in common? They are all part of Labour’s plan for growth and jobs. As our motion stated, the Government must take action now to increase demand and growth and give immediate help to the high street—[Interruption.] The Minister of State, the hon. Member for Hertford and Stortford (Mr Prisk), chunters from a sedentary position. If he wishes to ignore all the various business organisations, people might put a big question mark over his judgment. It is clear that the Government need to back our plan and that they must do so now.

[Julian Smith (Skipton and Ripon) (Con)]

Does the hon. Gentleman not agree that the Government have been listening to businesses organisations with regard to employment law and deregulation? I am surprised that he, as a former employment lawyer, has not included in the motion a single proposal to make it easier for small businesses in Britain to take on staff.

[Mr Umunna]

I will move on later in my speech to the Government’s employment proposals, which I might add were announced this morning to a conference rather than to this House.

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[Nick de Bois (Enfield North) (Con)]

rose—

[Julian Smith]

rose—

[Mr Umunna]

I have given way several times, and I want to make a bit of progress.

Instead of reverting to the tired old mantras and doing over the people who work in this country, perhaps the Secretary of State could tell us what he will do to get banks lending to small and medium-sized businesses that are, by his and the Chancellor’s own admission, currently being starved of credit. We know that the Project Merlin accord between the banks and the Government failed. The Secretary of State more or less admitted as much when he said:

“Merlin was necessary but it was never going to be sufficient. I don’t think any of us pretended it was enough.”

We know that the figures published under Merlin are entirely misleading, because under the agreement between the banks and the Government a gross lending measure was adopted, not the more meaningful net figure used by the Bank of England. The truth is that Project Merlin was really no more than a public relations gimmick designed to get the Government out of a hole when banks’ declarations of bonuses were in full flow earlier this year.

For real businesses, the failure is real. The Bank of England’s “Trends in Lending” publication for last month showed the stock of lending to UK businesses contracting overall in the three months to August. The Bank’s latest agents’ summary, for this month, stated that small businesses were still reporting that credit conditions

“remained tight, and in some cases had become tighter.”

That is supported by the figures released this morning by the British Bankers Association, showing lending by the high street banking groups to non-financial businesses contracting this month.

To resolve that problem, the Government first need to change their overall economic strategy, to give businesses the confidence to borrow and grow. The small and medium-sized enterprise finance monitor published last week showed that the main barrier to future borrowing by SMEs was the economic climate, but that the other major barrier was the lending practices of the banks. The Government need to use their influence with the banks, particularly through United Kingdom Financial Investments in the case of the banks in which the state has a stake, to insist that they get money out of the door to responsible businesses that have sound business models but are struggling to access finance. In addition, they must urge those banks to adopt a better lending culture—for example, by ensuring that they have local relationship managers on the ground who get to know the business concerned.

[Mr Umunna]

When will Government Members take responsibility? I wish that we were still in government, but we have not been for 18 months now. It is about time that they got used to the fact that they are in government and took responsibility.

Business is crying out not for a Government who step aside and fail or refuse to act but for one who adopt an active approach, using all the tools at their disposal to create the conditions for private sector growth. For all their claims about our record, such as the ones that we have just heard, the Government have kept in place some of the support measures for business that we left them on leaving office. I should point out that under Labour, 1.1 million businesses were created. When we left office, the UK was rated fourth by the World Bank for the ease of doing business, and first in Europe. Under this Government, the UK has dropped to seventh in the global rankings. We will take no lectures from the Government on support for business.

In government, we set up the Better Regulation Executive and the Regulatory Policy Committee to improve the quality, and where appropriate reduce the quantity, of regulation on business. I note that the Government have continued with them.

[Julian Smith]

Will the hon. Gentleman clarify the top five deregulatory measures that his party took in the 13 years it was in government?

[Mr Umunna]

I cannot name the top five, but the whole reason the Better Regulation Executive and the Regulatory Policy Committee were set up was to reduce regulations by a huge number and improve their quality.

In government, we also conceived the technology and innovation centres, to promote innovation. The Government are now rolling them out across the country, and they have sought to build on the measures that we put in place to reduce the bureaucracy of Government procurement and increase SMEs’ access to it.

In many other areas, however, there has been a disorderly retreat from an active approach. The Government have undermined certainty for investment, cut the science and research funding budget by 15% in real terms and abandoned the 10-year funding plan, and they have abandoned sector strategies such as the defence industrial strategy. The Automotive Council continues, but the RDAs, which could have helped make a reality of the ambition to strengthen companies’ supply chains, no longer exist.

The Government have undermined new industries, such as green industries, as my right hon. Friend the Member for Don Valley (Caroline Flint) will outline in the debate that will follow this one. They have delayed the roll-out of universal broadband and undermined the collaborative institutions that we set up to work with businesses, such as the Office for Life Sciences and the Technology Strategy Board, which are widely respected. The higher education sector, the seventh-largest export industry, has been put in disarray by the Government’s visa changes. Support for the digital, creative and educational sectors has been scaled back. Then there is the decision to award the £1.5 billion contract for new Thameslink trains to a manufacturer that will make them in Germany, which means that Bombardier is reviewing its activities in Britain.

The Government have retreated from action, undermined confidence, failed to unlock investment, failed to deliver a credible plan for growth and failed to use action to back business. They need to back our five-point plan for growth now and put in place a credible plan to build for our long-term success. These are difficult and challenging times for businesses and people in this country. They deserve better from a Government who say, “We are all in it together”, but who, time and again, show that they have absolutely no understanding of the concept.

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[Julian Smith]

Will the Secretary of State tell us what situation he found exports in when he arrived in his post? What sort of condition was UK Trade & Investment in and what great suggestions did the previous Government have in this area?

[Vince Cable]

UKTI has been radically reformed, thanks to the Minister for Trade and Investment, Lord Green. I think that it will perform an excellent function. What I found was that British export activity in the big emerging markets, which is clearly where future growth lies, had been sorely neglected for many years. As somebody put it to me, when we turned up on the beach the Germans were already in the deckchairs. They have dominated the market in these countries and we are a marginal player. It will take years to turn that around, but that is where our emphasis lies.

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[Gordon Banks]

I agree with my hon. Friend. If we do not get our infrastructure right, we will not be in the position that we want to be in when things move forward and we will be disadvantaged. I ask the Government not to look solely at big individual projects when they are trying to regenerate the economy. We need local and regional regeneration and investment in local and regional infrastructure.

[Julian Smith]

Does the hon. Gentleman welcome the Government’s introduction of the Work programme, which will help many of those JSA applicants of whom he spoke, and the new enterprise allowance, which gives significant sums of money to unemployed people who want to set up a business?

[Gordon Banks]

My experience of the Work programme is that it is a not-working programme.

The cut in VAT to 5% for home improvement repairs and maintenance—another part of Labour’s five-point plan—would discourage the black market and encourage investment in our housing stock at a time when the Government are wringing their hands about the green deal. Experian data show that a cut from 17.5% to 5% would have produced a £1.4 billion stimulus to the UK economy in 2010, which would have got Britain building. It is working on reviewing that figure in the light of the current 20% VAT rate.

On housing, which is an important part of the construction industry, social rent starts and affordable home starts have fallen by 99%, but in 2007, there were 357,000 first-time home buyers in the UK, who generated £2.1 billion in our high streets. That is the real power of the construction industry and why the industry is so important to the whole of the UK. I hope the Government plans announced earlier this week to regenerate the housing market deliver progress, but one must ask: why have they been asleep at the wheel for the past 18 months?

On lending, we are a country of small businesses, yet the Federation of Small Businesses tells us that credit lines for financially sound businesses have been tightened and interest rates have increased. The Federation of Master Builders has reinforced the point about that failure.

The Government have announced a desire to look at credit easing, which suggests that Project Merlin has failed. Do they know how much of Project Merlin’s compliance agreements are re-signed and recycled arrangements? Do they know that banks are withdrawing overdraft facilities and setting businesses up with term loans?

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[Richard Fuller]

I appreciate that, and I shall continue to listen intently to all the hon. Gentleman says.

The challenge that this country faces to restore growth is immense. It needs good ideas from both sides of the House and full commitment to the task. On that point, may I say gently to my right hon. Friend the Secretary of State, who is a noble individual and a good gentleman, that sometimes people feel that commitment may not be there 100% of the time from the Department, and that is a commitment to the role of the free market and business. It is as though we have at times a literary equivalent of Dr Cable and Mr Hyde. There is one part of the personality of the Secretary of State that embraces the idea of business and likes the approach of free markets, and then there is the other side of the personality that likes to hang out with a bunch of people on a camping holiday outside a well-known church musing on the merits of capitalism.

[Julian Smith]

Just to correct my hon. Friend slightly, this Government have done more than the previous Government did in 13 years on deregulation and freeing up British business. We must not lose sight of that.

[Richard Fuller]

That is absolutely true, but the challenge that we face is more immense because of 13 years of over-regulation by the previous Government, and because of the challenge of the international community. From the Secretary of State’s announcements today, I know that the sunshine side of his personality is more to the fore, and that he will demonstrate a strong and full commitment to the hard work that entrepreneurs and business leaders are putting in around the country.

I encourage the Secretary of State to take action on three further areas. First, I encourage him to work more strongly with the Treasury on ideas for credit that work for all sizes of businesses. Although there is a lot of emphasis on trying to make the banks a useful conduit of finance to small businesses, that is not working for very small businesses. Please can we look at alternative measures? Can we look again at tax relief for debt financing for our micro-businesses? For the first time, can we consider peer-to-peer lending organisations such as Funding Circle, which provides an alternative way of raising funds for small businesses? It is not enough to come forward with another policy that relies on the banks doing something tomorrow that they are not doing today.

Secondly, I encourage the Secretary of State to look at the sector that is the biggest drag on our economy, namely the bureaucratic state. If we want to create a growing economy, we cannot ignore such a substantial part of it. I encourage him to ask other Ministers to enlist our public servants and bureaucrats in the task of identifying growth. Every single day, the employees of small businesses in my constituency work very hard to create growth and the conditions for profitability, and they tell me that they are not getting the support they need from either their local government or their national Government. We need a culture change in our Government Departments. They need to say: “Our primary task—our national mission—is to support the growth of enterprise and business. What can we do every day to help people to achieve that?”

Will the Secretary of State also look at the opportunity provided by social enterprises? The Parliamentary Secretary, Cabinet Office, my hon. Friend the Member for Ruislip, Northwood and Pinner (Mr Hurd), who is the Minister with responsibility for the civil society, is doing a lot of work with social enterprises to free them from some of the burdens of regulation. Will the Secretary of State have his Department look at how the power of social entrepreneurs can be brought to bear on our public services and public sector so that they can be more productive? Social enterprises are a fantastic way to encourage growth.

Will the Secretary of State consider using Parliament to review outdated statutory instruments, laws and regulations that are a bureaucratic drag on productivity and business? Rather than using Parliament to pass new laws, we could use it to scrap existing ones. I am sure we can find time for that.

Thirdly and finally—this underlies all our efforts to create growth—I benefited in my career from two fundamental pushes on growth in our economy: building out the global supply chain and the consequential growth of financial services, which gave people the ability to buy goods and services much more cheaply than they would have got them had we relied only on a national economy; and the growth of information technology. The next source of fantastic growth is likely to be when households in India and China want to buy our goods. But that is not here today. That is not going to be here in the next five years. What we can do in that period of time is have a national campaign led by the Secretary of State to create an entrepreneurial society recognising that there are different motivations for being an entrepreneur. Not only do entrepreneurs want to make money; people are motivated by spiritural objectives. Let that be the mission and legacy of our Secretary of State.

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[Lorely Burt]

I am grateful to the hon. Gentleman, and he is absolutely right to say that there is more borrowing than we had anticipated. However, the amount of borrowing will be going down year on year. I am sure that my colleagues on the Front Bench would agree with me that we cannot get out of a debt crisis by borrowing more. At some stage we have to start actually paying the money back. The UK is borrowing at low rates—we have that confidence. Let us just imagine how many more jobs would be lost and how many more people would be suffering if we were borrowing at 32%—that is, if we were in one of those dark places.

The motion starts with the usual party knockabout. For example, we are supposedly “choking off” growth and

“failing to use strategically procurement and other tools to drive growth and innovation”.

However, it is not true that we have failed in that respect. We have cut corporation tax, and by the end of this Parliament we aim to create the most competitive corporate tax system in the G20. Research and development credits will rise by 200% this year and 225% next year. Then there is regulation. We have scrapped the proposals that the hon. Member for Ellesmere Port and Neston (Andrew Miller) was talking about, with savings to business currently amounting to £350 million a year. Whatever we did in our little Committee, it never amounted to that sort of saving. We have also introduced a moratorium on new regulation for micro-businesses.

Then there is technology and innovation centres, and so on—I do not have time to say much more in five minutes.

[Julian Smith]

The exemption for micro-businesses is a key development from this Government. Does my hon. Friend think that some of the arrogance of Opposition Members comes from their never having worked in a small business, and that that absence of business experience is influencing their views?

[Lorely Burt]

I would not dream of criticising Opposition Members. I know that quite a number of them have run their own businesses—micro-businesses and bigger businesses, too—but I also give our Government credit for coming up with that exemption, because it is an important source of help at a difficult time.

Finance has been a big issue. We have not got it right yet: there is more lending, but we still need to do more. We have continued the enterprise finance guarantee scheme and the programme of enterprise capital funds. We are also encouraging a more enabling environment for business angel investment, taking forward a package of investment readiness through a network of growth hubs. Then there is the bank-led £1.5 billion business growth fund, to provide funding of £2 million to £10 million for small and medium-sized businesses with strong growth potential. What is more, as I am sure even the Opposition would concede, we have not failed to use strategic tools to bring forward growth. Indeed, a number of those strategic moves are ones that Labour introduced.

After the knockabout we come to the constructive part of the motion, which is very welcome; indeed, I agree with some of it. However, the plan to levy a £2 billion tax on bank bonuses—this week it is to fund 100,000 jobs for young people and 25,000 more affordable homes—is a nice idea, but as my right hon. Friend the Secretary of State said, it is just not practical. We are already taxing banks every year to the tune of £2.5 billion, on the basis of the banks’ balance sheets. That is more than the Labour party raised with its £2 billion bankers’ bonus tax—a move that the right hon. Member for Edinburgh South West (Mr Darling) has already admitted has “failed”.

Opposition colleagues also suggest reversing the VAT rise for a temporary period. That is great, but how are they going to pay for it? What other cuts will they make instead? Is this part of their slowdown programme—their “not too far, not too fast” agenda, which has so spectacularly failed in America, whose credit rating has been downgraded and whose debt is now $15 trillion? The motion calls on us

“to bring forward long-term…projects to get people back to work”.

I totally agree with that—who would not?—and I hope to see more strategies that complement the things that we are already doing, such as the Green investment bank, the green deal, house building, the growing places fund, and so on. I would also like the council house building programme to be brought forward before we receive the receipts from the sale of 100,000 council houses. Why wait? Let us build those houses now.

I also agree with the suggestion of a one-year cut in VAT on home improvements, repairs and maintenance. The Treasury is losing many millions of pounds in revenue because of a growing black market involving private customers and small businesses paying cash for jobs done in their homes. The one-year national insurance tax break to help small businesses grow and create jobs is a great idea—one for which I have lobbied for some time. However, as a start, and to make it more affordable, why not introduce it for small businesses? I would greatly like to see—