Small and Medium-sized Businesses (Witham)

Neil Parish Excerpts

Wednesday 4th May 2011 Westminster Hall

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

I congratulate my hon. Friend the Member for Witham (Priti Patel) on securing the debate.

As we have heard, my hon. Friend is an outstanding advocate for small businesses in her constituency—the wealth creators, as she has rightly described them. Although I am a Member of Parliament for a Hertfordshire constituency, I recognise that just across the border in Essex there are some fantastic wealth creators. She spelled out the passion of people who start and run a business, and who take that risk to create not only wealth for them and their family but jobs for their community. We often forget that role of small and medium-sized businesses. She has mentioned a remarkable variety of SMEs, including larger businesses, the self-employed sole traders, family firms and a household name. Tiptree, for those of us who enjoy a little jam on the side, is a fantastic household name, and it is seen around the world.

I note—I will go no further than that—my hon. Friend’s bid for the enterprise zone. I add that my hon. Friend is absolutely right to spell out the role of the business representative organisations. With 80% of SMEs in her constituency in that group, the networking opportunity is crucial. In many ways, that is the foundation for our thinking, as a new Government, on mentoring and business support, which have an important part to play. Government have a role in helping small businesses. That is not to tinker and meddle in every aspect of business, as perhaps we saw under the previous Government, but to create the stable, long-term framework sought by businesses so that they have the confidence to start, to build and to invest in their ventures.

My hon. Friend has mentioned three areas in particular. I am mindful of time, so I want to respond to her points, if I can. First, with tax, we are taking a comprehensive approach, starting by simplifying a system that has become hideously complex and has for far too long soaked up too much productive time, effort and resource. Simplifying the tax system would give businesses greater clarity and certainty, allowing people who are investing and trying to build a business to have some confidence about not only the current financial year but the next. Part of the process has been cutting the main rate of corporation tax from 28% to 23% and, as she has rightly pointed out, down to 20% for smaller businesses, which is one of the best rates in the G7. However, I am sure that the Chancellor is as open as I am to her suggestion that, in the right time and when the finances allow us, we keep that direction of flow with the tax burden, by reducing the rates further in due course.

My hon. Friend has also rightly raised the issue of high streets. The charges that matter, alongside business taxes, are business rates and national insurance contributions. We have sought to double the threshold of the small business rate relief and extended the duration of the scheme by a year. At the same time, we have reversed the previous Government’s bizarre attempt to increase the cost of employing people, through national insurance contributions, with the express intention of keeping jobs affordable. She rightly pointed out that many of the job creators are SMEs. If payroll taxes increased, as planned, how would businesses have been able to take on new people?

Equally important in such a context is capital gains tax. I am proud to be the member of a Government who in less than 12 months took capital gains tax entrepreneurs’ relief from £2 million to £10 million. That might seem somewhat technical, but we are saying to the business owner that we want to reward hard work and endeavour, which is an important part of the change.

I was concerned about the attitude described by my hon. Friend with regard to Her Majesty’s Revenue and Customs. It has a business payments support service which, on the whole, works well, in particular with the time-to-pay initiative allowing people to defer VAT and other business taxes. However, I am not unaware of complaints about some offices and some officers, and if she writes to me I would be happy to discuss that with my hon. Friend the Economic Secretary to the Treasury, because we want to ensure that a service that exists to help people with cash flow is operating effectively and consistently.

Let me turn to regulation, which is a perennial problem for all SMEs. During the past 12 months, we have sought to change a culture rather than just a few regulations. As Sir Humphrey might say, it is a courageous step for Ministers, because it is easier to find a few elements, and to say that we have got rid of them, without dealing with the system. The one-in, one-out system is intended to deal with the core of the problem, which is to get Ministers to understand, as SME owners do, that it is not the single measure of regulation that lies heavily on the shoulders of a business, but the cumulative burden. That is why we are forcing Ministers to show, before they introduce additional costs on businesses from regulation, where they can make a corresponding cut. That is the balancing act that we are seeking to achieve.

I can update the hon. Lady. Our first statement, for the first six months of this year from January to June, shows that proposals for 157 measures have been reduced to 46. That is a 70% reduction in the volume of regulatory measures. What is encouraging about that is that just 11 have a net cost on business. Most importantly, it allows us to deliver real savings. For example, the previous Government introduced the right for employees to request time to train, and were going to extend it suddenly to every small business. That would have cost £150 million, but we are scrapping it, not because we are against training, but because many SMEs are doing it anyway. The regulation would have subjected SMEs to paperwork and processes to prove what they were already doing. That was a needless cost, and we have got rid of it.

The net result overall in the first six months will be a reduction of £3.2 billion in the cost of prospective regulatory burdens on SMEs, which is mirrored in other areas. We are scrapping 16 of the regulatory bodies that exist at the moment. We are putting sunset clauses into new domestic regulations and, as my hon. Friend has rightly pointed out, we introduced from last month a moratorium for the smallest firms on the burden of regulation for the next three years.

My hon. Friend has mentioned EU regulations, and I shall touch on that matter, because I know that they cause great concern to her and many of her constituency businesses. We are taking three steps in this regard, first to ensure that Ministers engage far earlier in the process with Brussels so that we do not find ourselves behind the track, and that France, Italy, Germany and others have decided what the principles of the change will be. Secondly, we are ending gold-plating, whereby we have often tied the hands of UK businesses too tightly. Thirdly, on the 2020 strategy, the Prime Minister is leading the way in pressing the Commission to help small businesses, particularly with an exemption for SMEs in EU regulation. We have already taken that step in the UK, and we are looking to roll it out across the other half of the regulatory burden.

My hon. Friend has mentioned the agency workers directive and, as she has said, my hon. Friend the Employment Relations Minister is dealing with that specifically. The deal that was struck in May 2008 included a 12-week qualifying period before an agency worker is entitled to equal treatment. We recognise that some businesses will have real problems with the way that the directive will work from the autumn. If we seek to change the arrangement but do not secure the agreement of the CBI and the TUC as part of that, the danger is that we could find ourselves in a worse position. The dilemma is difficult, which is why we are consulting carefully, and I am pleased that, as my hon. Friend has said, the Employment Relations Minister is looking carefully at the matter to ensure that large and small businesses are engaged in the process.

Access to credit is also a difficult issue for many small firms. I understand the issue of Amelia Rope—what a super business it is. It can be frustrating, and I certainly find it difficult when the Government cannot intervene successfully in an individual case, but the Secretary of State is leading the way in challenging the banks to make sure that they are not only lending, but behaving reasonably.

[Neil Parish (Tiverton and Honiton) (Con)]

Will the Minister give way?

[Mr Prisk]

If my hon. Friend does not mind, I want to answer the questions asked by my hon. Friend the Member for Witham.

We are taking various steps to help SMEs. First, we have secured an effective lending code and an appeal process, so that, for the first time for a dozen years or more, businesses can tackle the unreasonable behaviour that they sometimes encounter. I have encouraged hon. Members—I suspect that I do not need to encourage my hon. Friend—to back up their businesses, because that is the sort of direct action that has an impact on the chief executive of a major bank.

Secondly, we are extending the enterprise finance guarantee—it is not directly relevant to Amelia Rope’s business—so that a further £2 billion of lending can be unlocked. For example, in Essex we have seen 397 businesses secure EFG funding to the value of around £34.5 million. I recognise that that is not the only answer, and my hon. Friend rightly has raised the issue of capital. Debt funding is important, but for many SMEs the capital side—the equity side—is also crucial. That is why we have sought to provide an additional £200 million through enterprise capital funds, which have been designed deliberately to unlock a total of £300 million—£200 million plus £100 million—in equity funding for capital investment for businesses.

Alongside that—this is specifically relevant to the regional growth fund—we recognise the value of business angels. I am a great believer that business angels sitting alongside a business often bring not only funding, but a little grey hair—I declare an interest in that aspect—in terms of experience. We must ensure that small businesses have someone to bring experience of funding. That is why the regional growth fund has been able to extend the way in which we invest through a business angel co-investment fund. The Government should be careful not to invest public money in the wild belief that we have great wisdom in what to invest in, but if we invest alongside those who are experienced, and have a little skin in the game, we can make a sensible investment and grow that market.

That leads me to a broader point about access to credit. I strongly believe that although we need to take short-term measures with banks, we must deal with the long-term issue of competition in the banking system. If we get more entrants—I believe that we will—we will have a golden opportunity to enable people to choose. Every market works when there is a choice of providers. The problem with our banking system at the moment is that most SMEs have a choice between three or four players who have similar terms.

My hon. Friend has raised some excellent points about tax, regulation and credit, as well as about how the agency workers directive will work. She has rightly pointed out that we must enable not only the CBI and larger businesses to have the ear of the Government, but also smaller businesses, which sometimes struggle. In the first 12 months, the Government have started to take effective action by cutting red tape, simplifying the tax system, ensuring that the tax system rewards endeavour through the capital gains tax changes, making it easier to start, fund and grow a business and, in particular, by ensuring that we send a message that the Government include people who have run businesses and who understand them and, just as importantly, that we are on the side of small businesses in Witham and throughout the country.