Micro-Businesses

Mark Prisk Excerpts

Wednesday 25th January 2012 Westminster Hall

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

You are very kind, Mr Hollobone. Within the 10 minutes that I gather I have, I should like to try to respond to the smorgasbord of ideas suggested by my hon. Friend the Member for Newton Abbot (Anne Marie Morris). Although this is indeed a debate about micro-businesses, it is nevertheless significant—colleagues are still streaming back from the vote in the main Chamber.

This country has a strong tradition of entrepreneurship, and we as a Government really do have an ambition to ensure that we retain, and indeed strengthen, our position as one of the best places in which to start and grow businesses, throughout their life cycle—start-ups, micro-businesses, small and medium-sized enterprises, and so on. About 4.3 million micro-businesses exist in the UK, and yes, they represent about 95% of all enterprises in the country. In that cohort lies a huge variety of enterprise, everything from the university high-tech business—the spin-off—right the way through to the traditional family concern. Therefore, the Government need to be clear and effective in focusing on the right long-term framework for all types of enterprise, regardless of size and throughout their development. That will relate, in a moment, to the question of definition.

My hon. Friend has rightly set out her thoughts about how we can best help micro-enterprises, and I want to put very firmly on the record, as you have done Mr Hollobone, that with her enthusiasm and knowledge she is one of the best champions in this field. We could do with more champions like her.

I shall address the question of definition, and then come on to some of the other issues, at reasonable speed I am afraid, given the time before me. The issue that has been highlighted is: how do we define micro-enterprises? In some cases, people have argued that we might look at that group of up to and no more than four employees—

[Mr Philip Hollobone (in the Chair)]

Order. I am sorry to interrupt the Minister, but what we feared would happen has happened: there is another Division in the House. I encourage Members to come back as quickly as possible. I should like to restart the debate at 16 minutes past 5, at the latest.

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[Mr Philip Hollobone (in the Chair)]

I thank hon. Members for returning so quickly. We have until 5.21 pm.

[Mr Prisk]

I shall recap, although Hansard will seamlessly slide through the process, unlike the rest of us.

I was trying to respond to my hon. Friend’s suggestion that we need to revisit the definition of a micro-business, not least to make the policy more effective. This has largely revolved—in our previous discussions, including with other hon. Members—around whether we need to narrow that definition from 10 employees to fewer than five to target better the policies, as my hon. Friend highlighted.

I understand the point. I share the view that when we set policy, we need to ensure that it really addresses those people we are trying to help. It is also true that the Treasury will rightly want to ensure that when we are using taxpayers’ money, we direct financial support accurately at what they like to call leakage, which is a strange phrase but one that is understood in terms of the money being spent not necessarily reaching the people one is trying to support.

The definitions that we use are quite well established across Government and within the Office for National Statistics. As my hon. Friend also rightly said, those are clearly understood and are adopted on the basis of policy development in the EU as well. Without securing a change in definition across Whitehall and with the ONS and the EU, there is danger of confusion between different definitions when we develop policy.

Let me give some practical examples. At the moment, we are in the middle of discussions with EU partners about exemptions for micro-businesses from future regulations, to which my hon. Friend alluded. These are important. If we were to engage in a process, which would probably take a year or so to establish, according to which we might wish to define micro-businesses in a way that is different from the EU as a whole, clearly there would be a problem. It would be similar, in a sense, to our discussions with our EU partners over the next round of structural funds, which would start in 2014.

It is also true that we need to be careful about domestic policy and how that is applied. For example, my hon. Friend mentioned the micro-business moratorium, the moratorium from regulation, giving micro-businesses relief from the burden of additional changes in rules and red tape. We have secured significant reductions: the two that immediately leap to mind are, first, the postponement of the change in rules banning the display of tobacco products in shops, which is now only applicable to supermarkets, giving small businesses three years to consider how their business might be developed and, secondly, giving them the opportunity not to face those costs up front.

A similar case with a greater financial benefit to the smaller firms is the exemption that we secured, mentioned in part by my hon. Friend, on auto-enrolment for pensions. Again, that is a big saving for small businesses. Were we now to change the definition, there is a danger that there would be an immediate impact on firms employing between five and nine employees that are currently enjoying micro-business status.

I should like to highlight that, although there are benefits from considering whether the definition is accurate, our concern would be that there are obviously adverse consequences as well.

[Anne Marie Morris]

Does the Minister agree that it is crucial that we engage with the debate at European level about what those definitions should be, so that they work not just for other European member states, but for ourselves? Although I accept what he says, it is perfectly possible, without conflict, to have a UK definition that works within this ceiling umbrella, which the EU has created.

[Mr Prisk]

I think that that is true. My only concern would be that, as the policy is applied, if a business found itself defined as a micro-business in terms of one set of policies but not another, there is a danger of confusion in the very group that we are trying to help. I understand my hon. Friend’s point. We are not oblivious to the fact that, often, government of all forms probably thinks of small businesses as businesses employing 100 people, let alone ones employing three, four or five people, as we are discussing.

I shall deal with the definition, then I will get on to the practicalities in respect of what we are doing to help this important group. I am not seeking to dismiss the issue; I am trying to explain why the Government would be cautious about embarking on this path. I am happy—I have said it to my hon. Friend before, but am happy to put it on the record—to engage with her and the all-party parliamentary group to look precisely at how the definitions work, where the pinch points lie and how Government policy can best help this group.

My hon. Friend mentioned numerous important issues, and I will canter through them briefly in the few minutes that I have. The first is tax. I am grateful for her support for the changes that we have made, for example to small business rate relief. We have extended that holiday for smaller businesses for a further six months from October this year.

I understand the point about appeals. It is always a little challenging for a sole trader to take on the process. I trust and will ensure that my ministerial colleagues in the Department for Communities and Local Government consider that, and it is certainly high on our agenda.

Tax enforcement is always a sensitive issue. Clearly, it is principally a matter for my colleagues in the Treasury, but as the Minister with the privilege of responsibility for small businesses, I can say that we occasionally have a direct dialogue—he said carefully—with my Treasury colleagues and the tax and revenue authorities. They need to understand that ultimately, all of us, as public servants, are paid for by those same businesses, so the manner of enforcement is important. A careful distinction must be made between the real rogue and the person who has made the odd mistake on their VAT return late on a Sunday afternoon at the end of a working week. It is an important one.

I am also grateful to my hon. Friend for supporting what we have achieved on national insurance. She raised numerous other issues about tax, including fuel duty and the VAT threshold. Ironically, the VAT threshold—the cliff edge, as I think our hon. Friend the Member for Stafford (Jeremy Lefroy) called it—is, in a way, a cutback to the argument about how to define micros. We must be careful, but I welcome the points raised by my hon. Friend the Member for Newton Abbot. As I would like to remain the Minister with responsibility for business and enterprise, I will not pre-empt what the Chancellor might or might not say in his Budget in a few weeks’ time. However, those are good representations, and I am sure that the Treasury is listening.

Access to finance is an important issue. We have tried to think about micros. The enterprise finance guarantee was put in place specifically for those businesses without security to offer when seeking a loan, and it is very important for a micro-firm. Under the Merlin agreement, lending to small businesses increased in the past year over the previous year. Perhaps it might not achieve the full 15%, but we have yet to see the final figures.

[Anne Marie Morris]

Has my hon. Friend’s Department asked the banks to break down what sizes of business are benefiting from the schemes, so that he can see how many sole traders and mini-micros with fewer than five employees have benefited? That would be informative.

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[Mr Prisk]

The Small Business Economic Forum regularly meets the small business organisations and the banks. We will ask it for that kind of breakdown, so that we can get a better understanding of the scale of micro, small and medium. It is important.

I agree with my hon. Friend that some of those proposals do not necessarily reach the smallest businesses. That is why we have supported the community development finance institutions. Working through the regional growth fund, we have put together a package in response to an application, so that some £30 million of taxpayers’ money can unlock something like £60 million of lending. The money involved is very often the several thousands of pounds that a micro-business needs to make the difference between a good idea that becomes a profitable venture, and a good idea that remains just a good idea. It is an important area and very often it is an area where, frankly, retail banking struggles to justify the work involved to deal with such loans, and CDFIs are well placed to fill that gap.

In finance terms, the business angels are a crucial part of this equation. When we think of micros, we tend to focus simply on the type of lending—whether that is loans, credit cards or whatever—that the smallest of enterprises engage in. But I am a strong believer that, alongside the larger venture capital funds, we need to ensure that business angels are encouraged. That is why we have put together a co-investment fund of £50 million, to start to grow that market substantially.

[Anne Marie Morris]

That is a great idea, Minister; my challenge is to get that communicated. Can we ensure that the local enterprise partnerships have a role in that communication, because the money is there but nobody knows about it? The new website—the “Business In You” website—has 851 of these schemes listed, and it is fantastic, but it is not something that is easy for someone to work their way around.