Small and Medium-sized Enterprises: Government Policy

Lord Taylor of Warwick Excerpts

Thursday 17th June 2010 Lords Chamber

[Lord Taylor of Warwick]

My Lords, I, too, thank the noble Lord, Lord Sugar, for securing this debate. The writer Robert Frost said:

“By working faithfully 8 hours a day, you may eventually get to be boss and work 12 hours a day”.

We all know that running your own business is hard work, especially if, like the noble Lord, Lord Sugar, you started it from nothing. In business, you do not need a wishbone, you need a backbone. I am afraid Ronald Reagan was right when he claimed that the most terrifying words in the English language are:

“I’m from the Government and I’m here to help”.

Over the last 13 years, business has become complicated, bureaucratic and full of red tape. The Minister now has an opportunity to kiss and make up with the business community—and by kiss, I mean “keep it simple”.

We know that the Government are not a cashpoint machine. The former Labour Government’s Chief Secretary to the Treasury left a note stating, “I’m afraid to tell you there’s no money left”. So we know that the economic recovery will not come from the public sector; it can come only from wealth created by the private sector—from business. The fact is that over 90 per cent of all business in the UK is small business, employing fewer than 50 people. The entrepreneur has long been recognised as an important driver of economic growth.

Enterprise UK is an independent business-led charity founded by the British Chambers of Commerce, the Confederation of British Industry, the Institute of Directors and the Federation of Small Businesses. This week the charity produced a report based on a number of ideas that had come from 100 companies in the UK, ranging from multinationals to small business owners. It makes the point that small business tends to be more innovative than large business. But in terms of ease of starting a new business, the UK ranks only 16th in the world. There are barriers. The main obstacles are red tape, bureaucracy and lack of access to finance. The UK will continue to face significant challenges over the next decade from increased global competition. As we know, financial power in the world is gradually moving east, and the UK must respond by building a new economy based on business solutions.

The report also points out that enterprise is more popular than ever. Over half of the UK adult population says that it would prefer to be self-employed, but positive attitudes are not enough. From education campaigns to TV programmes like “Dragons’ Den” and “The Apprentice”, in which the noble Lord, Lord Sugar, makes such an impressive appearance, people’s minds can be opened up to the opportunities of running their own business. But too many are put off from turning their business ideas into reality because they cannot find the right advice and support. In my opinion, mentoring has an important role to play in helping businesses start up; and libraries, universities, colleges, job and community centres should all play their part in linking potential entrepreneurs with locally based mentors.

I turn to another report, one produced by the Department for Business, Innovation and Skills in November last year about black, Asian and minority ethnic-led business. It made the point that that sector is vital to the UK economy. There are an estimated 310,000 ethnic minority SMEs in the UK, contributing around £20 billion to the economy each year. They make up about 7 per cent of all SMEs in the UK. There are higher aspirations within these groups to start up their own companies than within their white British counterparts, but the conversion to start-up remains low, again because of the ongoing problems of lack of access to finance, business networks and mentors.

Levi Roots is a reggae-singing businessman. I see from his smile that the noble Lord, Lord Sugar, is aware of him. Levi developed his own sauce, called Reggae Reggae Sauce. I declare no personal interest in the sauce other than the fact that a bottle is in my fridge at home, and it does taste good. But Levi realised that that was not enough to make it sell. After years of failure and disappointment in life generally, he adopted the bold approach of going on to the “Dragons’ Den” TV show—he probably could not get on to “The Apprentice” because it is too popular—with his guitar and a bottle of his sauce. He presented his business plan to a stunned panel in a rather unusual way by singing his plan and the merits of the sauce. Well, it worked, because he was signed up by one of the dragons. That sauce is now sold in major retail stores all over the country. However, not every aspiring businessman can play the guitar or sing, so we have to make it easier for people who cannot sing and cannot play the guitar—I am not convinced that Levi Roots can sing and play the guitar—to succeed

The taxpayer bailed out the banks but is not getting the right service in return. The banks may be led by the new big society bank about which we have heard, but they must start to provide the small business community with the finance it needs to survive and grow. I agree with the noble Lord, Lord Sugar, that if applications for finance are turned down, businesses should be given the reasons for that refusal; often they are left completely in the dark.

Corporation tax should be reduced, both the main rate and the small companies’ rate. The Government should also exempt all new businesses from employers’ national insurance payments on the first 10 employees they hire in the first year. They should also reduce the burden of red tape. No new regulation should be introduced unless the burden can be reduced elsewhere—one in, one out. The number of forms needed to register a new business must be reduced. Again I agree with the noble Lord, Lord Sugar, on that point. There should be an end to restrictions on people starting a business in social housing. This would enable social tenants to become entrepreneurs.

There is a desperate need to simplify business taxes in order to give small businesses more certainty and stability. The Government must maintain generous tax exemptions to encourage enterprise. The income tax threshold needs to be increased, helping to lift millions of people out of income tax altogether and improving incentives to work.

The noble Lord, Lord Sugar, mentioned the thorny issue of capital gains tax. There are genuine concerns about the difference between the rate of capital gains tax at 18 per cent and income tax of up to 50 per cent as this could provide scope for tax avoidance by changing income into capital gains. At least the existing annual threshold of £10,000 must be kept, with any gains below this level being tax free. The Government’s aim must be to encourage savings and responsibility, not to penalise them. Capital gains tax could be tapered so that anyone selling assets would pay the tax at an increasingly lower rate the longer the assets were held.

Government procurement needs to be extended to small and medium-sized businesses. Again I agree with the noble Lord, Lord Sugar, on that. There should be an aim that at least 25 per cent of government contracts go to SMEs. The KISS principle should certainly apply—keep it simple.

The Government need to make Britain Europe’s leading high-tech exporter of manufactured goods by implementing Sir James Dyson’s recommendations to boost science and engineering. Apprenticeships tend to be associated with manufacturing and engineering, but we must not forget that they apply equally to the creative industries—media, music and the arts generally—which make up 8 per cent of UK GDP. Training for skills needs to be encouraged within that sector by further investment.

Finally, I encourage the Government to develop their Work for Yourself programme to enable people to move into self-employment. They need to continue to partner groups such as the Prince’s Trust and the Bright Ideas Trust and to offer support to the small business community.

Enterprise not the state will restore our economy, and I urge the Government to allow enterprise to lead the way so that Britain can be open for business again.