Lord Sugar
Main Page: Lord Sugar (Crossbench - Life peer)Small and Medium-sized Enterprises: Government Policy
Lord Sugar Excerpts
Lord Sugar
To call attention to the effect of the Government’s policies, such as proposals for capital gains tax, on entrepreneurship and on small and medium-sized enterprises; and to move for Papers.
Lord Sugar
My Lords, with the proposed first Budget of the coalition Government scheduled to be announced on 22 June, I feel it appropriate that in today's debate matters of change which may affect SMEs should be aired. Before I express my comments, I state that, pursuant to the Code of Conduct, I have registered with the Table Office any relevant interests that may arise from those listed in my name in the House register of interests.
After the formation of the new Government, I was surprised to hear rumours suggesting an increase in the rate of capital gains tax. I thought that such a suggestion would be totally alien to Tory policy. Your Lordships may agree when I say that there have been some rumblings of discontent in their ranks on this matter, but I quickly recognised that it was the brainchild of the new Business Secretary—no doubt part of the prenuptial agreement.
I then noticed some backpedalling on the proposal. The Prime Minister, closely followed by the Chancellor, said words to the effect of, “Don’t panic. Just wait and see”. This gave me hope that our debate today may still be in time to influence what I detect is a plan still being drafted, but I am a bit confused, because the Business Secretary said that the current policy on capital gains tax can lead to large-scale tax avoidance. That was endorsed yesterday by the Prime Minister, while discussing capital gains tax on the Jeremy Vine programme on Radio 2. In that discussion, he said that he did not come into politics to put punitive rates of taxation on savers and people who do the right thing. He concluded: “I think you’ll see that it’s a fair and reasonable outcome”.
I have researched possible schemes of avoidance. Excuse me if I am missing the point when I say that I have come across only one anomaly. It benefits individuals who manage private equity funds who somehow magically turn their commissions made by creating gains for their clients from normal income into a capital gain. I agree that that, like any other tax-dodging scheme, is wrong, but it would be simple to eliminate in isolation in the forthcoming Budget. While we are at it, can we take a look at other stupid anomalies, such as with spread betting, where it seems that trading in shares in one's own name is likened to placing a bet on the favourite in the three o'clock at Newmarket. Just like a win on the horses, those gains are tax free.
Having said all that, I do not agree that an increase across the board on capital gains tax under the guise of stopping those kind of things is fair to genuine traders and businesspeople. It will have a devastating effect on enterprising people who decide to take the leap and set up their own businesses with a view of either floating them or selling them by way of a trade sale. I know that there is currently a £2 million entrepreneur relief in place, but in this day and age that amount falls short of the aspirations of real growth companies, especially those in the technology sector. That big payout is the ultimate goal for such entrepreneurs and their loyal employees. Raising capital gains tax rates will not encourage employees of public or private companies who have been incentivised with approved share option schemes. It will depress their desire to work hard. Most devastated will be those business or asset owners who have worked honestly and hard all their lives and are reaching an age where they are considering a sale.
By all means curtail people who trade in and think up avoidance ideas, but leave the genuine people alone and allow them to prosper and generate employment by good old-fashioned trading, manufacturing and sheer hard work—or, as the Prime Minister put it yesterday, “those that do the right thing”. A taper relief system should exist, resulting in low rates, such as the 18 per cent we enjoy today. There should be a much clearer differentiation between business and non-business assets, to allow people to know exactly where they stand. It is wrong to suppress enterprise in any way. Those people who, outside of their normal work, invest in real estate in their own name to enhance or refurbish it with a view of making gains should not be punished if they have retained the asset for a fair period. The same could be said for those who are long-term shareholders. One needs clearly to differentiate between the fast-buck merchants and those who invest sensibly.
Your Lordships may be interested to note that from the tax year 1997-98 right up to 2007, when the rate was 40 per cent, with taper relief providing possible rates of 10 per cent for business and 24 per cent for non-business, an average revenue of £3 billion per year was collected. In 2007-08, when taper relief was abolished and the advantage of the 10 per cent rate was changed to a flat 18 per cent rate, there was a rush in the sale of assets resulting in a massive increase of receipts to £7.6 billion. From what I hear, it is estimated in that 2008-09, under the 18 per cent arrangement, receipts dropped back to £3 billion. I would hate to think that a significant increase in capital gains tax, albeit delayed until next April, would induce a fire sale of assets that would depress certain market sectors. Is it the Government’s real agenda to generate a massive windfall of revenue in order to boast in a year or so’s time about how well they are doing in reducing the current deficit? The Prime Minister said yesterday that revenues from additional capital gains tax will be used to supplement lifting the income tax threshold for basic-rate taxpayers. I am sceptical that the maths will work out that way. Instead, any windfall would be shallow and short-term thinking, simply playing with numbers and window dressing, ignoring the devastating long-term effect on enterprise and employment.
There is also mention that the Government intend to cut investment allowances with a view to funding a corporation tax cut. This idea will benefit only non-productive companies such as those in financial services, which make large profits with very little investment. Investment allowances have encouraged manufacturers to invest in leading-edge plant and equipment. They also release more working capital to them. These companies create employment, train the young and win valuable export sales. This is not the time to demoralise them or to create cash-flow problems for them. It will make them think twice before investing and, more to the point, investing in the UK.
Your Lordships will recall that last year I was engaged by the then Government to act as an adviser in areas relating to SMEs including, among other things, their relationships with banks. During that time, I attained quite a high level of understanding of the service provided by Business Link centres. I shall not speak of all the good things available to SMEs through these centres, save to say that it is a very good service. It makes a difference in helping and encouraging start-ups as well as hand-holding those already in business. I have heard that the Government are proposing major cuts, including cutting quangos or cutting costs at the RDAs, which worry me in respect of the future of Business Link centres. At the tail-end of my advisory role, I reviewed the cost of operating Business Link centres. I will be honest: despite being encouraged by what I saw out in the field, it quickly became clear to me that a lot of cost could, and should, be saved in running this service. I would wholeheartedly endorse a rationalisation of Business Link centres. It would generate significant cost savings if we made sensible changes by cutting duplication and centralising some of the services they provide. I am convinced that that can be achieved without any decay at all to the service they provide. My plea to the Government today is to say that, considering all the hard work in crafting this excellent service, it should not be abandoned or merged in some smoke-and-mirrors arrangement. I ask that it remains in place under its current branding and autonomy, albeit rationalised in cost terms so that it can continue to offer the great support it gives to the small business community.
In the March Budget this year, it was promised that government procurement departments will pay SMEs on time and allocate a larger percentage of their spending to small companies. I hope this promise is honoured by the Government, as it was one of the issues most voiced to me when I was engaged on the coal face with the SME community. Problems still exist getting on an approved government buying list. It is very complicated. It seems each and every department or council has its own criteria. I encourage the development of a simplified “one covers all” approval system to allow SMEs a fair crack of the whip, at least to be able to bid for the business.
My final topic is the old chestnut of the banks allegedly not lending to small businesses. Correct me if I am wrong, but do I detect in the past few weeks a complete silence on this, once branded a disaster area? From what I recall, it was frequently debated in this House and reported in the media. Why has it all quietened down? Is it that a problem did not really exist? Is it that those who complained now realise they did not deserve what they were demanding? Is it that for some people there has been a massive wake-up call that there are no free lunches out there?
The banks experienced a shock a couple of years ago from the world’s economic crisis. They were chastised for their irresponsible actions in getting into such trouble. Then, after the bailout, they were chastised again as to why they do not lend irresponsibly to every Tom, Dick and Harry.
Your Lordships will recall how this House, and those in the other place, raised concerns based on misreporting in the media of comments I supposedly made last year when trying to be realistic and honest on this subject. The then Government were so intimidated by this banking issue that in the last Budget they announced that the Financial Intermediary Service would set up a national credit adjudicator. So concerned were some that it prompted the noble Lord, Lord Razzall, then residing on the opposition Liberal Democrat Benches, to inquire,
“bearing in mind the well known views of the noble Lord, Lord Sugar … that there is no difficulty … obtaining finance from banks … that the noble Lord, Lord Sugar, will not become the adjudicator he referred to?”.—[Official Report, 25/03/10; col. 1067.]
I am delighted that the noble Lord, Lord Razzall, has decided to join in this debate and I look forward to his contribution, but let me allay any fears. There was never any intention of me being an adjudicator, but I did chair a committee tasked to find one. Interestingly enough, when the subject was discussed in detail to try to home in on what, if any, problem existed, it exposed many facets which needed consideration, including the possibility of concluding there was very little on which to adjudicate.
If I have one criticism of banks it is that they should be held responsible for giving detailed explanations to people as to why they have been turned down for finance. I am sure this constructive information will help companies understand what they need to do to with their businesses in future to secure finance. I am encouraged, as we start to see some recovery of the economy, by some banks divesting away from broking or other trading activities and refocusing, as traditional banks, on what they used to do best—lending money to businesses.
I conclude by saying how amused I was to hear that the Business Secretary—who last year, in response to my comments on banks, stated that I was “out of touch” in the business world—seems, having been in office for no more than 15 days, to have taken a leaf out of my book. Some may argue he infringed my copyright in his less than encouraging statement to the small business community when he said:
“I don't want to raise unrealistic expectations. I'm not going to go around the country with a chequebook signing cheques for every company that has a bright idea”.
If he carries on like that, who knows? He might get his own TV show.
Lord Sugar
My Lords, I express my belated congratulations to the noble Baroness, Lady Wilcox, on her new role and I thank her for her comments. If required, I would certainly make myself available to assist in reviewing the future of the Business Link centres. I also thank the noble Lord, Lord Taylor, for reminding me of that excellent example of Reggae Reggae Sauce, and the noble Baroness, Lady Gould, for focusing our attention on the importance of women in business—something I fully endorse.
I would say to the noble Lord, Lord Razzall, if he does not mind, on his comment about people having to put up their houses or give personal guarantees to get loans, why not? If you are not prepared to take the risk on yourself, why should a bank?
We have had a wide-ranging debate on the subject and I am grateful to all noble Lords who have spoken. Time obviously prevents me making further comment, but I am sure that we will return to these matters after the Budget. I therefore beg leave to withdraw the Motion.