Economy: Spring Statement

Lord Mawson Excerpts

Thursday 15th March 2018 Lords Chamber

[Lord Mawson (CB)]

My Lords, I welcome the Chancellor of the Exchequer’s Spring Statement. It is certainly good news to hear that the UK economy has grown every year since 2010 and that the manufacturing sector is enjoying its longest unbroken run of growth for 50 years, adding 3 million jobs. This is all good news and rather a challenge to those who argue that this country does not have a future outside the European Union. The forecast by the OBR of more jobs, rising real wages, declining inflation, a falling deficit and a shrinking debt is all very good news and one wants to congratulate the Government on this achievement in this challenging time of change. The commitment of this Government to continue to deliver a balanced approach is right, and few of us who have run real businesses and organisations in the real world believe that throwing money at the problems of Britain in some of our poorest and most challenging communities will solve anything; it will make them poorer.

I welcome the Chancellor’s plan set out in August 2016 to back enterprise and unleash our creators and innovators, our inventors and discoverers—to embrace new technologies of the future and to tackle our long-standing productivity challenges. The Chancellor is surely right when he chooses to champion those who create the jobs and wealth on which our prosperity and our public services depend. The market is the only way to go if we want to provide jobs for millions of people and the tax revenues that underpin public services.

This is all fine, I agree, but in this digital age, the very nature of our economy is changing and, as an entrepreneur operating in local economies and real towns and cities in this country, I see every day that much of the machinery of government is not fit for purpose. Looking down into that machinery from No. 11 Downing Street, you see one thing. The OBR can quote whatever numbers it wants, but standing in the middle of that machinery, trying to make it work in practice and trying to run a SME in the middle of it, you see something altogether different. I suggest that the cellars of the Palace of Westminster, for those of us who have visited, are a helpful visual clue as to the machinery of the state I am talking about—machinery that SMEs are meant to make work. This machinery is in a terrible mess. It is full of short-term fixes carried out over many years and not fit for purpose in a modern digital economy.

In a modern digitised economy, in which small and dynamic SMEs will increasingly define our future economy, it is essential that the Civil Service and the organs of the state have a greater practical understanding of the day-to-day workings of small dynamic organisations and businesses, so that we do not undermine the life that is in them. We have a serious problem and we need to address it. The SME sector is a key part of our future economy and many SMEs are pulling their hair out at the bureaucratic demands that are landing every day on their desks.

There needs to be a far clearer grasp within government and the Civil Service of the cumulative effect on the practical day-to-day operations of SMEs of all this burgeoning bureaucracy we are generating. There was no mention of it in the Chancellor’s speech, I notice. Each piece of this bureaucracy on its own can seem very reasonable, but when you put it together the cumulative effect on a small organisation can feel debilitating and sap the life out of very good and committed people. Is anyone in government noticing and taking personal responsibility for these unintended practical consequences? Who is spending time in the cellar worrying about the machinery? Who is even interested because everything looks well above ground?

The Civil Service, in my experience, is made up of good, caring, clever and often impractical people whose culture is overly impressed by large organisations and reports; they often seem uninterested in practice. Large bureaucracies talk to bureaucracies. They speak the same language, but often seem to have little grasp of the realities of the day-to-day operations of small organisations. Having run a secondment programme for the Civil Service over a number of years, my colleagues and I have had an inside view of what this can look like. I thought it might be helpful to illustrate the issue in one very small SME that my family and I have a close involvement with. We thus see and feel the practical effects and impact of a wide range of government regulations arriving on the desk of a very small staff of people on a daily basis—people who are conscientious and want to follow the letter of the law, but increasingly find it challenging to do so. Stanton Guildhouse in Worcestershire is a small SME serving its local rural community through its offer of arts and educational classes. Here I must declare an interest. Its work has direct linkages with the work I founded at the Bromley by Bow Centre 35 years ago, where we now run 70 SMEs. This particular small rural SME also offers accommodation, meeting and conference facilities to families, charities, the public and business sectors from across the country in its Grade II-listed Manor House. It is a busy project with only one full-time member of staff and two part-time staff, and a small team of tutors. The turnover of the business last year was £139,000.

We count that today there are over 40 different regulations that directly demand attention from this small team of staff, many of them accompanied by complicated documents setting out terms and conditions and so on. To comply, we should ideally employ a lawyer, a health and safety consultant and an HR manager, which is completely unaffordable. Even things which hitherto were straightforward like opening a bank account, or working out whether a cleaner or art tutor working a few hours a week is self-employed or not, become major undertakings in themselves.

The part-time finance officer has alerted me to the impact of recycling rules and regulations on the day-to-day operation of the organisation, as well as the new regulations coming up the line, Making Tax Digital, which I understand is coming out in April 2019, after which all entities—initially those above the VAT limit—will have to file online. I am told the accounting community expects to do very well out of assisting clients with this change—clients who have never before had to register for online accounts other than via HMRC or the Charity Commission website. This is seen, I am led to understand, as a huge cloud hanging over SMEs and indeed the charitable sector.

A colleague of mine, a digital entrepreneur with a successful growing business working increasingly in new markets overseas, tells me that new data regulations will cost his business at least £15,000 per annum. He tells me that we might like to think the UK is the best environment to set up and grow a business and that we have less bureaucracy than our overseas competitors, but we are in real danger of this becoming an illusion—his words, not mine.

I make it clear that my colleagues and I are not against the regulation and modernisation of services. We have built very successful entrepreneurial businesses, and social and business innovation is our core business. However, we have a real concern about the cumulative effect and scale of all this regulatory activity emanating from the many different silos of government, and whether it is sustainable in the real world. The logic that seems to underpin all this activity concerns us. Government cannot control every aspect of human life, and experience suggests that the more it tries to do so, the less personal responsibility for all our actions there will be. There is a balance to be found here and we worry that the Chancellor and his colleagues are coming out on the wrong side of this equation. Grand words and large numbers are fine but ultimately it is about the detail, and for the SME sector this matters for hundreds of thousands of jobs and millions of pounds of productivity. All this regulatory activity in turn produces many extra practical tasks for a very small team on a daily basis, which both is impossible to service and in practice undermines the involvement and work of good people who want to run a successful business.

In an increasingly joined-up and integrated world, I wonder whether the Government need to invest more in innovation in this space. We need to explore how to reduce all the unnecessary duplication produced by what seem like increasingly out-of-date silos and explore more cross-cutting solutions. I know we all talk about this endlessly, but the time has now arrived, in this digital age, when we must increase the practical activity in this space. Withdrawing from the EU may provide us with an excellent opportunity to grasp this nettle. As I say, it is not so much the individual measures that are the issue but their cumulative effect on SMEs across the country. People are becoming fed up to the teeth of an impersonal machine over which no one seems to have any control.

I have a practical measure to propose and a question to put to the Minister. Why not send civil servants drafting legislation, and perhaps all members of the Better Regulation Task Force, to spend some time in small organisations and businesses, to get the view “up the telescope”. They could spend some time working out whether that art class is or is not VAT-exempt; whether the tutor is self-employed or not; if the insurance cover is correct; if all health and safety requirements have been met; if the class is accessible to all forms of disability, likewise the online advert; if the records on the computer are compliant with data regulations; whether we have everyone’s permission for the photos; whether the risk assessment is up to date, and so on, times 40—all for something potentially involving just 10 people and lasting two hours. This is ridiculous and no way to run an economy, micro or otherwise.

In recent months I have listened to numerous speeches from all sides of this Chamber, worrying away at this issue. As the country prepares to leave the EU, now is the time to grasp this nettle. I suggest that our economy will depend on it. If we want a new generation of entrepreneurs to rebuild our economy and give us and their children a future, I for one hope the next speech by the Chancellor will have something to say about this matter, about the unwieldy machinery of government in an internet age, a digital age that I thought was meant to make our lives much easier but is in danger of doing precisely the reverse as we continue to apply old out-of-date siloed mindsets to a digital environment that is all about the integration of services.