Small Manufacturing Businesses

Mark Prisk Excerpts

Wednesday 15th December 2010 Westminster Hall

[The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)]

I congratulate the hon. Member for Mitcham and Morden (Siobhain McDonagh) on securing the debate, but also on setting out with real passion and determination how we ensure that the smallest enterprises are able to cope in difficult times. Given the Division, I think I am right, Ms Clark, in saying that I have until 4.40 pm. I want to ensure that I do not either run out of puff or get the wrong deadline and not get to the questions asked.

There are a number of broader issues, as well as the specific issue of this particular business. I would like to start with Loughboro Designs, so that I can then move on to the broader issues raised by the hon. Member for Mitcham and Morden and the right hon. Member for Oxford East (Mr Smith), on cash flow, tax and the ability of small and medium-sized enterprises to access finance.

Having run my own business, I understand the problems that the hon. Lady described. I was concerned to hear about the difficulties that Loughboro Designs has had, and she is absolutely right that the tragic death of Mr Wilson’s son adds to the human aspect of the case. I totally agree that we often forget that SMEs are in many ways about people far more than about cash sheets or balance sheets. The character of a business is always shaped by the character of the owner, and the difficulties on a personal level, to which she has referred, should be borne in mind.

When I learnt about the hon. Lady’s concerns, I instructed my officials to investigate the case, and they have been holding discussions with HMRC to see whether it would be possible to arrange a repayment plan for Loughboro Designs’s VAT bill. The hon. Lady highlighted some initial difficulties about contact with HMRC, which I have noted and will raise with my colleagues and officials. HMRC has been shown to be sympathetic to SMEs, and in the case of Loughboro Designs it has confirmed that it is willing in principle to conclude a further agreement under its Time to Pay initiative. It is willing, exceptionally, to receive a further payment proposal, which the business obviously will now need to draft.

Before seeing that new proposal, we cannot guarantee that it will be accepted, but I will ensure that it gets a fair hearing. In the meantime, the distraint action that the hon. Lady described will be held in abeyance. I hope that an agreement can be reached so that the company will be able to fulfil the orders that I understand it has for next January and thereafter. I hope that she will agree that those are initial, positive steps to try to unpick what is obviously a difficult problem.

My officials have also been in contact with the company’s bank, HSBC, to explore whether there is any scope for making additional lending facilities available. I share the hon. Lady’s concern that no viable company should be driven out of business unnecessarily. In that context, once the Time to Pay agreement is resolved, that will be the moment when the bank can act. We will keep in contact with her and the business, and I hope that those measures will give some comfort to her and to Mr Wilson. I also hope that that brings to the attention of Members the role of our “Real help for businesses now” team within the Department, which is able, willing and ready to help viable companies in distress.

The hon. Lady referred to the broader question of HMRC and the Time to Pay initiative, which I think is important. To be fair to HMRC, although there will inevitably be times when businesses are frustrated about discussions, it has set up the business payments support service so that companies that find themselves under pressure can quickly and easily arrange an agreement. Under that scheme, businesses can delay payment of VAT, corporation tax and other taxes to help manage short-term financial difficulties.

In that context, I take the view that cash is king. Time to Pay is about providing a lifeline for SMEs, which, more than any large business, find that tightened cash flow is the factor that drives them down and prevents them from proceeding. Interestingly, the figures available to date show that more than 370,000 such arrangements have been agreed, involving the deferral of around £6.3 billion in taxes.

I emphasise—it is a fair point to make—that Time to Pay is intended to support businesses that are fundamentally sound. The taxman clearly cannot support businesses whose financial viability is dependent on not paying taxes. That would not make sense; it would be good neither for them nor for the economy as a whole. The issue is about helping companies that are fundamentally sound, but might have a short-term problem.

The hon. Lady also mentioned how the tax system works and referred to the FSB. We agree with it that we need a simpler, more predictable and internationally competitive corporate tax regime. That is why in our first few months in government we have tried to take some positive steps. It is one of the reasons why we stopped much of the previous Government’s planned rise in national insurance contributions.

The FSB reckons that that rise could have cost about 57,000 jobs, so we have made an important change. We are also cutting the main rate of corporation tax over the next four years from 28% to 24%, so that this country will have one of the lowest rates of any major western economy. That means, particularly for manufacturers, that the balance between the corporation tax reforms and the reforms that we are planning for capital allowances will leave £250 million a year in the coffers of manufacturing businesses, which is good news. With regard to smaller firms, we are also reducing the small companies corporation tax rate to 20p, rather than increasing it to 22p, as the previous Administration planned to do.

The hon. Lady rightly mentioned access to finance, which is important. Clearly, some businesses are still feeling that pressure, and as we move out of recession and into the early stages of recovery, there tends to be a tightening on the position for businesses, particularly on the availability of working capital. Our view with banking is clear: where we are presented with evidence that banks are behaving unreasonably on lending decisions or the terms and conditions related to them, we will consistently and persistently challenge the banks involved. We need to ensure that we have that evidence. Where we do, we act, and we will continue to do so.

It has been encouraging in the past six months to see the banks start to step forward with clear commitments. The British Bankers Association brought forward 17 commitments in its new proposals to help move things forward, and those words now need to become actions. The proposals include a revised lending code for small firms and a new appeals process for cases in which finance has been declined, and those proposals are especially relevant to smaller businesses. It also includes a £1.5 billion growth fund to be spread over the next 10 years, which is important for companies wishing to grow.

I suggest that the question of competition is just as important so that business have a choice. At the moment, the choice is narrow—principally four high street banks. That is why we have asked the Independent Commission on Banking to look carefully at how we can broaden that, and it will set out its initial ideas in the spring.

The hon. Lady rightly asked what the Government can do in the meantime to bridge the gap. We are taking action to extend the enterprise finance guarantee, which was rightly established under the previous Administration, and are now providing £600 million extra over the coming year. We are rolling the enterprise finance guarantee out over the next four years, which means unlocking about £2 billion extra in bank lending.

The hon. Lady also rightly referred to community development finance institutions. I am pleased to be able to tell her that on Monday I met the Community Development Finance Association and spelt out that we will not only reform the enterprise finance guarantee for existing lenders, but do so in a way that makes it easier for CDFIs to be part of it. The Government will therefore be able to underpin our lending to those small micro-businesses that, frankly, many of the banks do not reach. Those will make some important differences to some of the micro-businesses involved. We are also increasing the enterprise capital funds by around £200 million over the next four years, which will provide around £300 million in additional venture capital investments. Therefore, there is help with debt and with equity.

However, there is another aspect that I find is increasingly raised by the small business community, particularly in those areas of manufacturing where capital investment is important: the role of business angels. We are keen to see an expansion of business angels and are interested in how we can make the climate for them more investment friendly. That is why we are encouraging them, together with Capital for Enterprise Ltd, the Government’s SME investment arm, to put a bid to the regional growth fund to create a business angel co-investment fund.

[Mr Andrew Smith]

How helpful does the Minister think the Government’s changes to capital gains tax have been in that respect?

[Mr Prisk]

I think that they have been helpful. Certainly, the representations I have received indicate that the fact that the entrepreneur’s relief, which is now 10%, has been extended from £2 million to £5 million, has been welcomed by many people in the investment community and the small business community. Those reforms matter, because if we can make progress in that area, we can move forward.

I am conscious of the time and so will bring my remarks to a conclusion. I commend the hon. Lady on securing the debate and hope that the specific actions to which I have referred for supporting Loughboro Designs will progress. The Government are also trying to help with regard to tax, finance and cash flow, all of which are crucial. I hope that the developments I have mentioned will proceed, and I will be happy to talk with her after the debate and in the coming weeks to see whether further action will be necessary in the case that she has discussed or similar cases in her constituency.