Small and Medium-sized Enterprises: Government Policy

Lord Razzall Excerpts

Thursday 17th June 2010 Lords Chamber

[Lord Razzall]

My Lords, I join other noble Lords in thanking the noble Lord, Lord Sugar, for giving us the opportunity to express our views on this very important topic. I also congratulate the noble Baroness on her appointment, as she joins other Liberal Democrat colleagues in the department.

I should make it clear that I do not speak for the Government but for the Liberal Democrat partners in the coalition Government. Listening to all the contributions, one thing on which we can all agree is that it is vital that as little damage as possible is done in the Budget to SMEs, as it is now generally accepted that significant growth in the economy can come only from that sector, particularly, as a number of noble Lords have indicated, in the high-technology businesses which spring up. If they are fortunate enough to be owned by the noble Lord, Lord Mitchell, they will be sold for large amounts of money.

In an ideal world we would not be contemplating tax increases or any form of cuts in expenditure. Listening to the eight Labour speakers who have spoken so far—I think every speaker has come from the Labour Party except for the noble Lord, Lord Taylor—one would imagine that we live in a perfect world which they have created for the small business sector. To be fair, I do not think we can look at the problems that the Government face without looking at the overall state of the economy, left behind by the Labour Party.

Perhaps I can put on the record some of the numbers which we now have from the Office for Budget Responsibility. In relation to the Government’s forecast for growth for the next four years, by 2014 the estimate is that the economy will grow by only 2.6 per cent as opposed to the 3.5 per cent that Alistair Darling put in his last financial statement. Much of that growth will come from the SME sector, but it will be significantly less on this objective forecast than anticipated. Looking at the debt figures, one ray of sunshine in the Office for Budget Responsibility figures was that the actual borrowing costs for this year will be significantly less than originally forecast but, even given that, by 2014 we shall still be borrowing in that year £71 billion, of which £51 billion will represent the structural deficit, which means that the deficit that will not be eradicated by growth in revenues.

Other horrendous figures include the following: the spending on social security for this year will be £169 billion, which will rise to £192 billion in 2014. Perhaps the most shocking figure of all is that the interest paid on the British Government’s borrowing will rise from £42 billion this year to £67 billion in 2014. Those are absolutely shocking figures and explain why, when those figures were made available to the Liberal Democrat members of the coalition Government, we changed our minds with regard to the necessity to take action now. We went into the election believing that no action should be taken for the first year; we agreed with the Labour Party, but it had the information and we did not. For that reason we have changed our minds.

Listening to the eight Labour speakers, we would get the impression that all was well in the garden of the SMEs on their watch. I am not entirely sure that that is correct. As the noble Lord, Lord Taylor, said, we are regarded as the 16th country in the world for the ease of starting a business. We ought to be significantly higher. I will not touch on the restrictions, which the noble Lord did very ably. The noble Lord, Lord Mandelson, when he was Secretary of State—he is now, I understand, known as the third man—introduced many initiatives, many of which were unproven. Several speakers have rightly said how successful the Business Link centres were, but by the time that the Labour Government went out of office, it was unproven to what extent many initiatives were helping or were unhelpful.

Then there is the issue of the control of the banks, especially those in which there is significant taxpayer investment. The noble Lord, Lord Sugar, referred in his opening remarks to the witty exchange that he and I had on another occasion, when he said that he was misquoted as saying that anybody with a decent idea and a decent business plan could easily get a loan from a bank. Listening to what he said this morning, I got the impression that that is still his view. From my experience with clients and anecdotal evidence, that is not the case. Banks have made it much more difficult for small businesses to take advantage of loans. Often, they have required personal guarantees from entrepreneurs where no personal guarantees would have been required in the past. They have often required significantly increased interest rates. The general bureaucracy involved with a lot of the clearers in obtaining loans for small and medium-sized enterprises has been a problem. No one I talk to disagrees that that has been a problem. The overall problem has been that a large amount of capacity was taken out of the market with the collapse of the Irish and Icelandic banks. If all the clearers lent the same to SMEs as they did before the collapse of the market, a third or a quarter of the capacity would still not be there, so there would still be a shortage of funding.

It has become clearer recently—I am grateful for the research that has been done by the Institute of Directors—that it appears that under the Labour Administration, during the boom years of what are now known as the noughties, one-third of FTSE 100 companies paid no tax at all, while one-third paid only a nominal amount. Notwithstanding the marginally lower rate of tax for SMEs, during the Labour period, the SMEs’ share was disproportionately greater than that of the FTSE 100 companies. That clearly bore heavily on the SMEs.

What should the Government now do? We have had a very interesting debate on capital gains tax, and the noble Lords, Lord Sugar and Lord Mitchell, have come up with a lot of interesting ideas about what, even if the capital gains tax rate is to be increased, can be done to protect the entrepreneur and small businesses. The Government need to review the “Mandelson initiatives” to see which of them should be left in place—which of them have been effective—and which of them should be closed down as ineffective. The Government need to concentrate on the mechanics to achieve greater lending from the clearers, particularly those in taxpayer control, to SMEs.

To make a slightly partisan political point, bearing in mind the mess in the economy with which the Labour Government have left this Government, as Mr Attlee once said to Mr Laski, “Perhaps a period of silence on this topic would not come amiss”.