SMEs (South of England)

Mark Prisk Excerpts

Wednesday 15th June 2011 Westminster Hall

[Mr Andrew Smith (Oxford East) (Lab)]

I congratulate the hon. Member for Gosport (Caroline Dinenage) on securing this debate, which raises important issues. As she said, they are important because small businesses are vital for jobs, sustainable growth and prosperity, and because it is crucial that our region does not become stereotyped by the Government or others to our disadvantage.

As the hon. Lady demonstrated by citing the statistics about her own constituency, the truth is that there are wide variations in employment, wage rates, small business formation and success within regions as well as between them. The particular needs of our region are not the same everywhere in the region. As well as being supportive of small businesses in general, policy needs to be sensitive to the particular circumstances of each local economy and its small businesses.

Judging by the experience of my constituency and local economy, we could be forgiven for thinking that the Government do not want economic growth in our region at all. Oxford is an incredibly vibrant economy, with lots of small businesses that have spun off from or are servicing our successful universities and hospitals, the Mini plant, and publishing and other high-tech enterprises, but some decisions that the Government have taken are limiting rather than encouraging growth, small business success and job generation.

One of the biggest constraints that we face in Oxford is housing and developable land. I have no doubt that our local economy could achieve much more economic growth if there were more houses for people to live in and more premises for small businesses, but one of the first things that this Government did was to scrap the south-east plan and set their face against any change to the Oxford green belt, thereby blocking both much-needed housing that was already being planned and the Magdalen college science park extension. The tight local authority boundaries that we have in Oxford give the neighbouring local authorities an absolute veto over our expansion, a veto that they do not hesitate to exercise, even on land of very limited ecological or amenity value.

The second hammer blow that I have to refer to is the incredibly ill-judged and damaging measures aimed at cutting the number of people coming from overseas to learn English here. That is a problem not only in Oxford, but in Bournemouth, Brighton and other southern coastal towns, and it will, I fear, inflict incalculable damage on English language courses and schools that have been generating about £1.5 billion for the UK economy, much of it in southern England. That all adds to the bureaucratic minefield for these kinds of educational businesses and colleges, and the Government’s much-vaunted moratorium on red tape clearly does not apply here. Much of the complexity, as English UK has said,

“results from the UK Border Agency trying to legislate in educational matters which are not its proper remit and where it neither has expertise nor has shown any great inclination to listen to those who do.”

As well as the economic and reputational damage that the changes will inflict on the wider international education sector in which the UK has an important strategic competitive advantage, they will hit the micro-businesses of many host families who supplement their income by accommodating overseas language students.

I come to the third hammer blow. The hon. Lady referred to the regionally discriminatory holiday on national insurance contributions for new businesses, and asked about the rationale for that. I have had a look at the Her Majesty’s Revenue and Customs website where there is a question and answer section. It asks:

“Why does the Holiday not apply in London, the South East and the East?”

and the answer given is:

“The scheme is intended to promote the formation of new businesses employing staff in those countries and regions most reliant on public sector employment. The proportion of jobs in the public sector is higher in other countries and regions than it is in the Greater South East (London, the South East and the East).”

Even if we accept the logic of that approach, it is obvious that the regional criterion is unfairly broad-brush because it must mean that new businesses in local economies in other parts of the UK that have low public sector employment will get the help, whereas areas in the south that are very reliant on public sector jobs, such as my own constituency and that of the hon. Lady, will not.

One of the biggest problems facing small businesses is access to credit, and the failure to hit the targets for bank lending to small and medium-sized enterprises under Project Merlin will hold back small business growth at the very time and in the very places where we need it most.

Business rates are another huge problem for small businesses. I acknowledge that the Government have tried to provide some help, but because of the high rental values in many parts of the south, business rates, which are based on them, tend to be higher, and therefore the costs of setting up and operating a small business have a double whammy effect on the cost of premises.

I could say a lot more, but I know that a number of other speakers are keen to get in. I have not yet mentioned the knock-on effect of cutting the teaching grant to universities by 80% and the trebling of fees, the alienation of other small business organisations by the preference given to the British Chambers of Commerce as co-ordinator of the local economic partnerships, the damage of cuts to investment in the transport infrastructure of the south—to which the hon. Lady also referred—and the interesting recent Institute of Directors report, which showed small businesses benefiting less from Government changes to business taxation than larger ones.

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

Was the right hon. Gentleman hoping to get on to the £500 million investment by BMW in his constituency, and the important help that the company has cited as coming from the Government to enable the investment?

[Mr Smith]

If we are being absolutely honest here there is an important continuity in automotive policy concerning the building blocks of that investment. The hon. Gentleman may seek to make a party political point but I will not. We all have to pull together for the success of the automotive industry, and I am enormously proud of what BMW has achieved with the Mini, and of the strength of the partnership with the work force and the local community, which is making such a success of the initiative. I have already referred to the Mini plant as an important source of business for small enterprises in our area. Those enterprises benefit from the business that BMW generates in the supply chain, and from the spending power of the work force.

I conclude by underlining that it is wrong to see small business support as a zero-sum game between the south and other parts of the UK. The south is an engine of the UK economy, and the wealth that we generate benefits directly and indirectly other parts of the country, just as we will benefit from successful regeneration and from tackling deprivation elsewhere. We need a proper sustainable growth strategy for small businesses in the south, as in other regions, which focuses on improving skills and infrastructure, cutting unnecessary red tape, nurturing enterprise, keeping down taxes and overhead costs, and ensuring that the planning system facilitates rather than strangles sustainable growth and small business formation. By initiating this debate, the hon. Lady has done us a particular service by calling to wider attention the danger that complacent generalisations about the state of the small business economy in the south risk killing the geese that are laying the golden eggs.

--- Later in debate ---

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

I congratulate my hon. Friend the Member for Gosport (Caroline Dinenage) not only on securing the debate but on her excellent contribution. How refreshing, in this Parliament, in a debate on small businesses, to see a significant number of hon. Members such as myself with a business background. I know it is meant to be a dangerous thing for a Minister to have some knowledge of his subject, but it is actually immensely helpful. Many of the representations, on whether we can do a little more of this or extend a particular scheme, are in many senses a process of singing to the choir. I am sympathetic, but we have inherited a tight financial situation and, without wanting to get partisan, we have therefore been restricted in some areas in which we would like to do more. Hon. Members of all parties appreciate that.

As was pointed out by all hon. and indeed right hon. Members, small businesses are vital. We heard from the Opposition spokesman, the hon. Member for Streatham (Mr Umunna), and I welcome him to his position; this is the first opportunity we have had to debate in Westminster Hall. He is right to talk about how small businesses represent a significant proportion both of businesses as a whole—99% in the south-east—and of the jobs created, accounting for just over half of private sector jobs. In my book, small businesses are the drivers of growth and the leaders of innovation, and as we try to move away from the recession, we want to improve on that.

Let me say at the start that this Government are absolutely committed to enabling more people to start businesses, and then to grow them. Many of the initiatives that make a real difference to people’s bottom line in running a business, whether micro, small or medium, are policies that affect every business throughout the country—national policies. I shall come to some of the specific aspects, and the spatial and regional dimension. The Government have started by trying to ensure that people who want to begin the journey of starting a business can do so.

The new national enterprise allowance, which is available throughout the south-east and the country as a whole, will be rolled out over the next year, and will help thousands of unemployed people, whether in Gosport or elsewhere, to take that first step on the crucial journey from being unemployed to being self-employed. That is why we are overhauling the whole bureaucratic process of, for example, registering a company. It has been ridiculously complex in the past, and when I started my business at the bottom of the last recession, it was immensely slow and expensive. We are putting the process online, and making it quick and cheap so that people can get going and get under way.

That is why the Government, during our first 12 months, sought to stop the planned increase in national insurance, which would affect every small business and could have cost, according to the Federation of Small Businesses, some 47,000 jobs. We stopped that, and that helped businesses up and down the land. It is why we are reforming the tax system, to which several hon. Members referred, and cutting the rate back to 20p instead of increasing it, as had been planned. It is also why we are ensuring that the system is simpler. In the past, too much time has been lost in trying to comply with bureaucracy, reliefs, allowances and the ever-changing two-Budgets-a-year process. Simplification and greater predictability are crucial when trying to run an SME.

On regulation, I totally understand that there will be natural caution about how this Government, more than any other, are making progress. My hon. Friend the Member for Esher and Walton (Mr Raab) referred to one in, one out. During the first six months, when we invited representations on various regulations, we received 157 on different regulations. We have cut those by 70% down to 46 and only 11 will cost businesses anything. That is a start, as hon. Members have said, and they are right. This is the beginning of a process, and there is a lot more to do. I am working with my colleagues throughout the Government to consider the next half-year—July to December—so that that 70% reduction in the number of regulations can be matched and improved on. However, we can do more, which is why have introduced the new moratorium for new regulations on SMEs to ensure that micro, small and medium businesses can get on with their business without worrying too much about complying with Government bureaucracy.

That is also why we have taken the bold step of ending gold-plating of EU regulations in this country. We have had a habit of being the first to implement them, and in a way that is far more complicated for our businesses than for our European competitors. We are changing that, which is why we will not implement EU regulations a day earlier than we legally must, and why we will ensure that we do not add to directives and make life more complicated when our businesses are competing with their European partners. Those are crucial steps that will make a difference to the bottom line.

I turn to the specific issues raised by various hon. Members. My hon. Friend the Member for Gosport rightly pointed out the crucial role of exports in our growth overall, and in helping SMEs improve their productivity and innovation. The evidence is there. That is why UK Trade and Investment is changing its strategy to make it far more entrepreneurial. It also has a new “passport to export” service deliberately aimed at SMEs. We have worked with the Export Credits Guarantee Department to loosen up some of the regulatory processes, and to introduce a series of new schemes to help businesses in the credit area with a simpler credit insurance product, a new bond scheme to make things easier, and a new foreign exchange credit scheme. If my hon. Friend would like further details, I am sure that my officials will be happy to supply them.

I shall deal with an issue that is specific to Gosport, and then speak about generic matters. As my hon. Friend knows, I visited her constituency yesterday, and met other people in Portsmouth and elsewhere in the area. One initiative that we are driving forward is recognition of the tremendous value of the marine engineering industry. It is crucial for many hon. Members who have spoken today, but has been neglected. We have all recognised the importance of automotive engineering, and we have all pushed the case for aerospace, but the country has tremendous expertise in marine engineering. I am co-chairing the Marine Industry Leadership Council, and leading the strategy with the industry. It sets out the key issues involving technological change and the ability to take on new opportunities so that that industry is prosperous. That is crucial for areas such as Gosport. National political leadership can make a real difference to a local area.

My hon. Friend mentioned the national insurance holiday. A little perspective is important, but I understand people’s concern. The change will help new businesses. No existing business in any constituency will be treated differently, whether they are in the north or the south. That is important. Although the Chancellor is clearly under financial pressure, he wanted to make a difference, and to help business formation in areas where it is at a lower level, so we chose to help businesses outside the wider south-east. I note the representations, and I totally understand the point. I will come to the broader point about specific pockets of deprivation in apparently more affluent areas, but the policy has tremendous merit. These are early days but, like all tax policies, the Chancellor will keep a close eye on it. He has noted, as have I, hon. Members’ representations.

On finance, the Opposition spokesman, the hon. Member for Streatham, mentioned a couple of issues, as did another hon. Member who is no longer in his place, about access to finance. This is crucial in terms of ensuring that we hold the banks to their targets—I will come to that—and how we deal with equity finance and risk capital. That is why we ensured the continuance of Capital for Enterprise with a £200 million fund. It is also why we have pushed the banks to provide us with a business growth fund, aimed at the mid-caps, which will help unlock around £2.5 billion. The hon. Gentleman also referred to targets. It is the capacity targets to which we will hold the banks. Clearly, in any negotiations there will be other ways in which we wish to stretch the banks and challenge them, but we are monitoring the capacity targets.

On regional growth funds, I am well aware that if people have not won funding they will want to know why, and I understand that. The first round was very popular, and heavily over-subscribed. The second round is now in hand, and its capacity has doubled. It is worth pointing out that it is focused on areas with heavy reliance on the public sector, but the scheme is based on merit, and there is no attempt to place a limit on businesses applying in different parts of the country. That is important, and leads on to the wider issue.

As I discussed yesterday when I visited Gosport, such places have pockets of deprivation, as does my constituency in Hertfordshire, and in a strange way they are more isolated than if they were in an area that is generally recognised in the statistics as bring deprived. That is why the old regional debate about north-south is too crude. It is why I talked to the Solent LEP, as I have to others, about looking at the nomenclature of units for territorial statistics—the NUT statistics, which relate to the size rather than the sanity of the preparation—to ensure that we drill down and better understand the real problems. It is one reason why we are replacing regional development agencies with local enterprise partnerships. That will allow us and, more importantly, local business and civic communities, directly to address some of the problems and local issues that might be masked by more general affluence, which tends to colour the way in which Government policies work. That is why enterprise zones will be open for all enterprise partnerships to apply for.

I had the opportunity of seeing the former HMS Daedalus, which is a fascinating sight. We are in the bidding period, so I must be careful, but I am sure that my hon. Friend the Member for Gosport and her supporters and constituents will make a powerful representation.

Finally, issues were raised about the new generation of entrepreneurs, whom I totally support. Several hon. Members mentioned that, including my hon. Friends the Members for Romsey and Southampton North (Caroline Nokes) and for Newton Abbot (Anne Marie Morris). Yesterday, I was at my alma mater, Reading university, to open its new enterprise centre. We must do what is done in silicon valley, and bring investors—

[Mr Gary Streeter (in the Chair)]

Order.