Small and Medium-sized Enterprises: Government Policy

Lord Young of Norwood Green Excerpts

Thursday 17th June 2010 Lords Chamber

[Lord Young of Norwood Green]

My Lords, I, too, congratulate my noble friend Lord Sugar on securing this debate and on his excellent contribution.

Although I did not agree with much of what the noble Lord, Lord Razzall, said, I agree that this debate needs to take place against the backdrop of the coalition Government’s economic strategy. Recently, George Osborne was keen to point to the recently agreed G20 communiqué on the need for countries to reduce their budget deficits. He failed to acknowledge that the agreement also requires countries to put in place credible growth-friendly measures. The communiqué states:

“The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances”.

The communiqué mentions growth-friendly measures, not just deficit cuts.

Removing key support for industry, as the coalition Government advocate, far from strengthening the economy, will weaken it. The Government seem to see spending cuts as the silver bullet to rebalance the economy—something stressed by David Cameron in a recent speech at the Open University and by the recently converted Chief Secretary to the Treasury, Danny Alexander, who said:

“The best thing that we can do to increase growth and create jobs in this country is tackle the enormous budget deficit”.—[Official Report, Commons, 8/6/10; col. 171.]

Again, nothing is said about the importance of creating growth opportunities.

Far from having a plan to support growth, the coalition has, in its first acts, undermined growth by cutting regional development agencies, which support businesses across the country. My noble friend Lord Corbett gave a graphic account of the importance of Advantage West Midlands in helping SMEs to create new business opportunities. The Government have also created uncertainty for industries of the future by their decision to review the Labour Government’s policy of supporting those industries—new industries that have the potential to be strong and create jobs, whether by producing low-carbon cars or in the nuclear industry. Targeted government action can unlock the private sector investment that brings new jobs. That is why we decided to invest almost £1 billion in key industrial projects spanning a range of industries: aerospace, low-carbon electric cars, nuclear advanced manufacturing, and wave and tidal energy. If the coalition Government pull the plug on the Sheffield Forgemasters loan, for example, they will display a complete lack of vision for Britain in the worldwide nuclear supply chain.

Interestingly, in the belief that cuts are the way forward, Vince Cable said that he wishes his department to be the department for growth, but he sees no role for government and indeed wishes it to get out of the way. We believe that there is a vital role for government. It is not enough to have a strategy for deficit reduction; we must have a plan for growth.

The noble Lord, Lord Razzall, reiterated the determination to say that we—the previous Government—left the economy in the worst possible position, while seemingly he did not worry about the impact that saying that has not only in this country but abroad. I thought that the Office for Budgetary Responsibility’s recent report was interesting. Although the growth forecast clearly fell short—of course, we had not been able to take into account what happened in the eurozone, which will clearly have a big impact on growth—the report pointed out that the deficit in 2009-10 has reduced from £166.5 billion to £156.1 billion. Government borrowing was £10.4 billion lower than forecast at the Budget, proving that the Labour Government had taken a cautious approach in their forecast of public finances; indeed, we had set out a plan to halve the deficit over four years. We therefore reject the view that we left the economy in a terrible state.

There are now significant examples of the recovery being under way. The economy grew in the fourth quarter of 2009 and the first quarter of 2010. Retail sales rose by 4.3 per cent in the year to April and manufacturing output rose by 3.3 per cent in the year to March. Interestingly, the OECD forecasts that the UK will achieve faster growth than the eurozone or Japan in 2011. That does not sound like a complete record of failure, as the Government are alleging. I could cite other statistics but, given the time, I shall not. However, one is interesting: company insolvencies are at one-third of the rate that they reached in the recession in the early 1990s. Unemployment is significantly lower than it is in the US or the eurozone and claimant count unemployment is half the level that it reached in the early 1990s recession. On capital gains tax, the Minister has had a lot of sage advice from my noble friends Lord Sugar and Lord Mitchell, so I do not think that I need to expand on it.

I want to emphasise some of the measures that we took. We cut corporation tax to 28 per cent, which is the lowest rate in the G7. We doubled the capital tax allowance to encourage business investment in 2009-10. Contrary to what the noble Lord, Lord Taylor of Warwick, said, the UK has the lowest barriers to entrepreneurship of all OECD countries and, last year, was ranked fifth in the world by the World Bank for ease of doing business. There is clearly a clash of analysis or research here, but I stand by that evidence. From April 2010, the annual investment allowance will be doubled from £50,000 to £100,000, which will provide further incentives for SMEs to invest in their businesses. The enterprise finance guarantee scheme has helped almost 9,000 businesses to access loans totalling more than £900 million. The number of businesses claiming R&D tax credits has continued to rise. The time-to-pay scheme has allowed more than 200,000 businesses, which collectively employ 1.4 million people, to delay more than £5 billion in business taxes on a timetable that they can afford. We introduced the strategic investment fund, which is worth £950 million, to provide investment in advanced industrial projects where specific market failures are preventing otherwise viable developments.

There has been an interesting debate on the value of the Business Link service. I know that my noble friend Lord Sugar feels that there is an opportunity for it to make some savings, but it is providing benefits in advice and training. My noble friend Lady Gould gave examples of the important help that it gives to women. On procuring government contracts, in 2009 we announced that businesses would no longer have to pay a fee to search for government procurement contracts worth up to £100,000. The Labour Government said that they would provide thousands of free business opportunities to SMEs. I noticed that the noble Lord, Lord Sassoon, announced a further development, which is a move in the right direction. We also facilitated the opening in August 2009 of the National Enterprise Academy, the first UK educational institution dedicated solely to enterprise and entrepreneurship. Later that month, we joined forces with the Federation of Small Businesses to offer up to 10,000 graduates internships in small businesses. That is a vital area of co-operation. The Labour Government also reduced the time taken by government to pay its bills from 90 days to 30 days. I would welcome some assurance that the Government will keep moving in that positive direction, because we know that that is another incentive for businesses to embark on government contracts.

I am conscious of the time. I think that I have previously congratulated the noble Baroness, Lady Wilcox, on her appointment, so I shall not reiterate that. Before the election, the parties now in government made quite a lot of noise about how they would assist business, especially SMEs. The test for them now is that they have to deliver.