Small Businesses

Lord Popat Excerpts

Tuesday 3rd February 2015 Lords Chamber

[Lord Popat (Con)]

My Lords, I am grateful to my noble friend Lord Risby for initiating this important and timely debate. He speaks from great experience and I commend his interest in small businesses. It is an honour and a privilege for me to respond to a debate on my favourite subject and I commend organisations such as the Federation of Small Businesses and the British Chambers of Commerce for the work that they do.

Perhaps noble Lords will permit me a moment of self-indulgence. For some 30 years before joining your Lordships’ House, I was a small businessman and I am the third generation of my family to start and grow a small business. My grandfather, Haridas Hemraj, was a jute trader. My father, Amarshi Haridas, was a shop owner with a sub-post office. I initially followed in my father’s footsteps as a sub-postmaster before a career in accountancy, specialising in business and corporate finance, so business is very much in my DNA.

It is one of life’s great satisfactions to start and run a business and I am proud to have been a member of a Government who have done so much to support small businesses. This Government recognise the importance of small businesses, which are the engine of our economy. The UK economy is recovering from the biggest financial crisis in generations and I would like to share what we have done so far and what we are doing to help small and medium-sized enterprises, which I will refer to as small businesses from here on.

Let me talk first about the fiscal incentives. We have cut corporation tax from 28% to 21% and announced a further cut to 20% by 2015, the joint lowest rate in the G20. For small employers, there is a £2,000 cut in national insurance bills with the employment allowance. We have extended the small business rate relief for a further year from April 2015. Small businesses that are starting up or relocating to an enterprise zone will qualify for enterprise zone relief. They can get up to 100% business rate relief for five years, up to a maximum of £275,000. In the last Budget, the Chancellor doubled the capital allowance from £250,000 to £500,000 until December 2015.

Moving to banking, a number of noble Lords mentioned concerns over finance for small businesses. For too long there has been an overreliance on our four biggest banks, which between them account for 85% of business current accounts. We have introduced many measures to help small firms to have access to finance. We have increased competition in the banking sector, we have increased the availability of credit through the Funding for Lending scheme, and we have finally established the British Business Bank. On competition, two new banks are being spun from Lloyds Bank and RBS, while other challenger banks such as Metro Bank, Aldermore and Cambridge & Counties are also growing. There are a further 20 applications for new banking licences in the pipeline, so it is hoped that with more competition, our SMEs will be able to access finance more easily than they are able to do at the moment.

The Financial Services (Banking Reform) Act has created a payment systems regulator to ensure that the UK has a payment infrastructure that supports a competitive banking sector. The Government are also taking very practical steps to help small businesses to access alternative sources of finance. The Autumn Statement announced an upgrade to the seven-day current account switching service to include 99% of all small businesses. Provisions in the Small Business, Enterprise and Employment Bill will require the banks to refer small business customers who have been declined a loan to alternative lenders via designated platforms. So far, the overall lending picture is encouraging. Gross lending to small businesses in the year to the end of 2014 was up by 25% on the equivalent period in 2013. Some 66% of new finance applications from small businesses are now successful, from a low of 33% in the first quarter of 2013.

We have also launched the British Business Bank, which has facilitated a total of more than £890 million of new lending and investment to over 21,000 small businesses in the year to the end of September 2014. Last month the Prime Minister announced the 25,000th start up loan, which means that more than £129 million has been lent to people of all ages who have made the leap to start their own business.

As the noble Lord, Lord Empey, has just said, one of our long-standing economic weaknesses is our record on exports. We do not export enough to pay for our imports. I can recall that in 1971, when I was a 17 year- old, Harold Wilson wanted Edward Heath to resign because we had a deficit of £14 million. I am glad to have shared over dinners and discussed in corridors what more we can do to help in the export effort. Currently, one in five SMEs exports, but if we can change that to one in four, we will be able to clear our trade deficit.

When I came to your Lordships’ House, one of the first things I did was set up an ad hoc committee, chaired by my noble friend Lord Cope, to see what more the Government could do to help SMEs export more. The committee, of which the noble Lord, Lord Empey, was a member, took evidence from all over the country, and went to Brussels. The committee published a report in 2013, to which the Government responded positively and they have since launched a number of initiatives. In the last Autumn Statement, the Chancellor announced further financial support for UKTI. In 2013-14, around 48,000 businesses were helped by UK Trade & Investment trade support services; nearly 90% were small businesses. This support helped generate additional sales of more than £49 billion and created or safeguarded more than 220,000 jobs. The Government have also provided a further £20 million to help companies export for the first time. UK Export Finance also continues to support exporters with a network of regionally based export finance advisers who help businesses with risk and trade finance issues. UKEF’s trade finance and insurance solutions products have provided more than £1 billion of support to UK exporters of all sizes.

The Small Business, Enterprise and Employment Bill, which I have enjoyed debating with the noble Lords, Lord Mendelsohn and Lord Stevenson, and on which I have had the pleasure of working closely with my noble friend Lady Neville-Rolfe during its progress through this House, contains measures that will open up new opportunities for small businesses. More specifically, the Bill will support small business in a number of areas including improving companies’ payment practices and helping to tackle the issue of late payments. The noble Lord, Lord Shipley, had strong views on this. I am pleased to confirm that a summit was held this morning at Downing Street attended by the Federation of Small Businesses and the CBI. The Bill will also improve access to finance. It will assist small business expansion overseas and streamline public procurement to help small businesses gain fair access to the £230 billion public procurement market, which my noble friend Lord Cavendish mentioned. It will cut down on red tape and will also help to support home businesses and streamline small company filing requirements. The Bill will reduce the barriers that can hamper the ability of small businesses to grow and compete and will pave the way for Government to be more supportive of, and less burdensome to, small business in the UK. I look forward to the support of the Opposition when the Bill has its Report stage.

Infrastructure investment will help small businesses, which need to be able to operate in an environment that allows them to flourish. The Government are trebling investment in major roads schemes by 2020-21, the biggest investment in roads since the 1970s. Under way is the largest programme of investment in the railways since Victorian times. Crossrail, electrification, HS2 and HS3 all show our commitment to secure a step change in Britain’s connectivity.

My noble friend Lord Risby remarked on broadband in relation to SMEs and micro-businesses. The Government are working hard to put the UK at the forefront of the digital revolution and are committed to 95% of UK premises having access to superfast broadband by 2017. Five community projects are currently being funded to help improve connections to remote locations. My noble friend Lord Freeman mentioned commercialising ideas in Cambridge. I will write to him on the points he raised. Many ideas in the technology sector in Cambridge are supported by venture capital, which was mentioned by my noble friend Lord Leigh. Angel networks play a particularly important role in providing finance and guidance to small businesses in some of our fastest growing industries.

In summary, there were a record 5.2 million private sector businesses at the start of 2014. That is an increase of 760,000 compared with the start of 2010. At the start of 2014, small businesses employed 15.2 million people, 60% of total UK private sector employment. The Government have worked hard to support small businesses. Time has prevented me from mentioning many other initiatives, such as local enterprise partnerships, but we know there is more to do. The Government are committed to fostering and assisting the entrepreneurial spirit that thrives in the UK. We have continued to lead the way in our support of small businesses because we want to make Britain the best place in the world to start and grow a business.

I have covered a few of the questions that were raised, although not every one. My noble friend Lord Risby asked whether the Government will review the structure of business rates. We will report by Budget 2016 and the Government will publish terms of reference in due course. We will certainly review it. My noble friend was right that in some cases the rates exceed the rent. My noble friend also raised the issue of prompt payment. We are improving public sector payment practices through the Small Business, Enterprise and Employment Bill.

Once again I thank my noble friend Lord Risby for initiating this debate and all noble Lords who took part in it.