Sam Gyimah
Main Page: Sam Gyimah (Liberal Democrat - East Surrey)(14 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Sam Gyimah (East Surrey) (Con)
Thank you, Mr Deputy Speaker, for allowing me to speak in this important debate. In the short time that I have available, I shall focus on small businesses. Many Government Members agree that to get the economy back on track, we need small businesses and the private sector in general to begin to employ people again. We also believe that only when the private sector begins to employ people will we lift the country up and get it back on its feet. I want to tackle three elements that affect small business: first, the funding environment in general; secondly, the regulatory regime; and thirdly, the access to talent.
On the funding environment, much has been said in the House over the past few weeks and months about the need for banks to lend to small businesses, but we need to consider how banks treat small businesses in general. There is an institutional bias against small businesses in terms of lending money to them. Many banks would rather not do so, because the revenue profile of small businesses is too volatile, and banks tend to see that as equity-style risk, so they stay away from it. There is also an institutional bias in terms of the absolutely critical bank charges that small businesses have to endure.
Ms Louise Bagshawe (Corby) (Con)
Is my hon. Friend aware of the invidious practice, so prevalent in my constituency, whereby banks ask the directors of small businesses to give personal guarantees, despite the healthy shape of their balance sheets? Such practice discourages entrepreneurs from developing small businesses.
Mr Gyimah
I agree 100%. For many small business men or women, the only way in which they can get the banks to give them credit to grow their businesses is to put their own assets on the line, and that is unacceptable because those people often take on a lot of risk to keep their business going. In looking at the funding environment, we need to get banks not just to lend, but to consider everything else, including credit.
It is great to see new small businesses trying to step into the breach, however. I came across a business called Funding Circle, which encourages lending by private individuals to small businesses, but that is nowhere near enough compared with what the big banks can do.
Mr Gyimah
Sorry, I do not have much time.
Another thing that the Government can do, in particular, is look at cash flow. One of the biggest things that determines the fate of a small and growing business is the amount of cash flow, and national insurance and VAT are the key drivers of that. The Government have made the right decision by giving certain businesses national insurance holidays, but it would be great if we could extend that to more businesses.
Mr Gyimah
Sorry, I have to push on.
We need to look at not only national insurance, but the VAT threshold. Ideally, it would be helpful to small businesses if we raised the threshold, but that is not going to be easy in the current environment, so perhaps we should ensure that Her Majesty’s Revenue and Customs, with its “Time To Pay” policy, does not clamp down too hard on small businesses that are trying to keep their business going, keep people employed and do the right thing. That is absolutely essential.
Let me turn to research and development grants. The representatives of a thriving business in my constituency came to my advice surgery and told me that, to get any R and D grant from the Government, they would have to move to Cornwall. They are willing to put a significant amount of personal capital into their business, but because R and D grants are organised regionally and targeted at certain regions, and they are in the south-east, they lose out. We should have a flexible system in which the money follows innovation and ideas and is not just targeted at certain regions.
My right hon. Friend the Member for Wokingham (Mr Redwood) mentioned the regulatory regime. A big challenge for small businesses is employment legislation. If every time an employer uses an agency worker they have to calculate after 12 weeks whether they can take on the cost of employing them, we end up with perverse incentives whereby businesses try to make their employees self-employed when they are in fact full employees. The employer is trying to avoid either getting sued if something goes wrong on the employment side or paying national insurance. That does not help the business, nor does it help the Exchequer. I strongly encourage the Government to consider using the freedom Bill to deal with the “one in, one out” policy in relation to legislation for small businesses.
Another factor is access to visas for highly talented people. Many internet and technology businesses who employ computer scientists and require people from all over the world are struggling because of the current visa regime. The Government must consider that, especially as last week the Prime Minister said that we want to create a silicon valley in the east end of London. However, for many of these businesses it is not just about having a cluster in that location, but about whether they can get the talent they need to grow their business. Their revenue profile is such that it takes them a very long time to start gaining revenues. They have a long period where they are investing and testing their technology, and then, if they are successful, they start getting in revenue. If our regulatory regime is such that they are incurring huge costs, whether in national insurance, VAT or statutory employment costs, before they are a viable business, we are not giving them the chance to succeed in this country.
I thank my right hon. Friend the Member for Wokingham for pushing for this debate. If we really want to be pro-business, we should put our money where our mouths are, take away all this legislation, and make the funding regime better for small businesses.
Julian Smith
I am sorry, but I will not.
Statistics do not take into account the effect on small businesses of the sheer worry of all those burdens, nor the reality of a world where Britain will be under increasing pressure to attract internationally mobile jobs.
Julian Smith
I am sorry but I will not, because then I would be biased.
As a headhunter working with some of the biggest companies in the world, I saw just how easy it was to put a senior employee in an international location rather than the UK. I have long list of examples of when London came last in the choice between London, New York and Asia. That will happen without fanfare or fuss, which is why our employment policies must be ruthlessly competitive, as must our tax and immigration policies.
Over the next few years, we desperately need people to take the risk and set up businesses, invest in existing ones and create jobs here in Britain. Labour accelerated its depressing legacy of employment law in its dying days. We have been left with the agency workers directive, the Equality Act 2010 and additional paternity leave. Each will have a major effect on British business, and the Brussels juggernaut has been relentless too. The pregnant workers directive will add £2 billion of cost to British business if it gets through. The coalition is trying to address these issues through a set of attractive policies to create the best conditions for growth—scrapping the job tax, the national insurance holiday for businesses outside the south-east and cutting corporation tax.
I pay tribute to the Minister of State, Department for Business, Innovation and Skills, my hon. Friend the Member for Hertford and Stortford (Mr Prisk) who is doing a phenomenal job for British business. We need to let business focus on growth, and the coalition is pushing forward with additional legislation, including removal of the default retirement age, the shared maternity and paternity rights, and the right to request training. Those are key measures that will be introduced next year.
Last week, I had an Adjournment debate, in which I urged the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey), to have a holiday on employment law for 2011, the year when we need more jobs than ever to be created in this country. I also urged the Minister to show British business a light at the end of the tunnel and do a full and thorough review of employment law, staying true to the coalition agreement of “one in, one out” and applying that to employment law as to every other regulation. If we are able to achieve both an employment law holiday and a full review, the coalition will have grasped the employment law nettle and begun yet another good initiative for growth in this country.
Mike Weatherley (Hove) (Con)
Many Members will now be aware that the expertise I bring to the House includes music-related issues. The banks do not have a good record of lending to this industry, so let me set some background. Since the 1960s and the first so-called British invasion, the UK’s musical talent has dominated the world stage. Last year, one in 10 artist albums sold in the US and Canada were made by UK artists, and Britain is one of only three net exporters of musical repertoire in the world. The 2008 report by the PRS for Music showed that British artists earned £139.6 million overseas, up 15% on 2007. International royalties have more than doubled since 1999.
The top-five touring PRS music acts in 2008 were, in order: first, the Police; second, Iron Maiden; third, Coldplay; fourth, the Spice Girls; and fifth, Elton John. For the UK, music is an enduring worldwide success story. It is vital that our music entrepreneurs, like any other small businesses, can gain access to the sort of finance that will ensure our creative talent keeps blooming. Unfortunately, however, evidence suggests that this simply is not happening right now. Early in 2009, the UK Government, with EU support, provided UK banks with €1 billion to invest in British small businesses. The scheme to enable the distribution of this money was called, as I am sure many hon. Members know, the enterprise finance guarantee. On 1 March 2009, legislation specifically sought to identify suitable music, composers and own-account artists—in other words, those artists looking for financial support outside the ever-shrinking record label investment—for EFG money.
The enterprise finance guarantee has failed the music sector. Research by UK Music and the Music Managers Forum has yet to identify a single example of a musical entrepreneur who has benefited from the scheme as originally intended. I hope that I am not alone in finding that attitude hugely disheartening. The previous Government talked about developing initiatives to support the creative industries, and especially music. In a report called “Banking on a Hit”, published as long ago as 2001, they concluded:
“Whilst small music businesses are similar in many respects to other small creative businesses, there are important differences which give rise to unique problems in raising finance, and contribute towards a ‘funding dilemma’ for Britain’s music businesses. Difficulties in raising finance are affecting the ability of the music business to grow and prosper.”
Mike Weatherley
I agree entirely. UK Music has identified situations where banks will not lend to music businesses, even though they will guarantee the other 25%, because they consider them too risky and because they intend to lend to businesses to which they would perhaps already be lending.
I am delighted that the Department for Business, Innovation and Skills has announced that it will work to make the EFG more transparent and accessible. I am also delighted that a further £2 billion is to be provided to UK banks, and that the scheme has been extended. Specifically, I would like the Government to apply pressure to the banks to reverse their prejudice and apply EFG funding to British artist and music businesses, together with the £25 million of EFG credit set aside specifically for investment in music, and especially in young British artist talent. The figure of £25 million is what music industry leaders have advised is the lending required to ensure that we remain a net exporter of music and continue to be internationally competitive.
Music is not merely entertainment; it is a national and economic asset. With the right support, our artists, musicians and entrepreneurs will continue to dominate the world and do this country proud, but the Government need to work with the banks to ensure that development capital is available.
Mr Jamie Reed (Copeland) (Lab)
It is, as usual, an absolute pleasure to follow the hon. Member for Northampton South (Mr Binley). I did not come into the Chamber expecting to agree with so much of a Government Member’s analysis of what we need to do, but he is absolutely right: the banks do need to lend more, the Government do need to make the banks lend more, and in matters of economic policy we do need to take a long-term view. Those are fundamental principles with which I agree.
Whichever side of the House we may be on, we all know the basic Clinton mantra about what secures electoral success and that is an article of faith in which we must all believe in the modern economy: “It’s the economy, stupid.” Those words were not reserved specifically for the Chancellor of the Exchequer, but we know that the economy is fundamentally a moral issue as much as anything else. The effects of economic policy are primarily seen and felt not on a balance sheet, but in our communities up and down the country. I believe that an effective economic policy redistributes wealth and opportunity fairly: it underpins cohesive communities, enables individual ambitions to be fulfilled, and allows families and businesses to flourish.
I commend the right hon. Member for Wokingham (Mr Redwood) on securing the debate, because we need to discuss this subject more. Given that we are experiencing a period of economic transition in this country and, indeed, across the globe, our debates in the House are sometimes mystifying. We need to discuss this subject much, much more.
I sincerely hope that the Government’s economic policies work, because this is our shared interest and, surely, our shared goal, but I have to admit that I doubt that they will. It is undeniable that one of the worst aspects of the manufactured narrative surrounding the Government’s economic policy is the polarisation of the so-called private and public economies. The Conservative and, now, Liberal Democrat mantra is “Private is good, public is bad.” We should reject that flawed view. I say “Public is good, private is good.”
Mr Gyimah
I think that what the Government are trying to say is that the state is not the same thing as the economy, and that pumping more money into the state is not the same as driving the economy. If we want the economy to grow, we need to enable the private sector to thrive. That is what the Government’s policy is about.
Mr Reed
I entirely agree. This is not just about the state. However, economic policy should not be used in an ideological agenda to try to destroy the state, and we know that that is happening in this instance.
The “public good, private good” mantra is the one that we should adopt. Our national economy is one economy. “Public” and “private” are not segregated in our towns, villages and cities. As an analysis by PricewaterhouseCoopers has shown, it is not possible to cut the public sector without hitting the private sector hard as well.
Mr Pat McFadden (Wolverhampton South East) (Lab)
This is a timely debate. We have learned that my hon. Friend the Member for Glasgow North East (Mr Bain) was making speeches about growth when he was but eight years old, so we know that there has been significant interest in this matter across the House for some time.
We meet here today at the same time as the G20 meets in Seoul, and I wish to contrast the role that Britain played when the G20 met in London with what is happening at the current meeting. At the London meeting, the then Prime Minister, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), led the debate, shaped the debate and helped to pull the leading economies of the world together on an agenda that helped to prevent recession from turning into depression. What is happening at this meeting? Britain is playing no leading role, and the leading economies of the world are gathering together in an atmosphere of tension over exchange rates and trade imbalances. What a contrast between the London meeting and the one currently taking place.
Of course we all want to see economic growth, but it is also crucial for growth to be evenly spread throughout the country. We enjoyed many years of economic growth before the recession, and Labour put in place a determined and active sub-national policy to ensure that that happened.
Mr McFadden
If the hon. Gentleman wants to talk about outcomes, I would remind him that the action that the Labour Government took helped to ensure that the level of repossessions, business failures and unemployment during the recession that we are just coming out of was about half that in the recessions when his party was in power.
As I said, growth has to be spread evenly throughout the country. This is not just an economic question; it is a social and political one too, because if parts of the country are left out of the country’s economic future, there is a profound disaffection that affects all of us. So what policies might we look to so as to ensure that such growth occurs? Of course, finance for industry is essential. We have reached a point where there is a dialogue of the deaf between banks and businesses. Businesses say that banks will not lend to them or will do so only on usurious terms, whereas banks say, “There’s a lack of demand, and look at all the billions we’re lending.” The present Government say that the banks ran rings around the Labour Government, but the more they ramp up the rhetoric the more they expose their own weakness, and their impotence to do anything about the situation. After six months of this Government, we have heard nothing that will increase bank lending to business.
I suggest that we should have a proper contract in place that goes something like this: the taxpayer rescued the banks from financial collapse, so we need a new consensus on the role of banking, which is that, as that rescue had to take place, the banks must play their proper role in putting forward finance for businesses to invest and grow. The truth is that we can have all the debates that we like about growth in this House, but unless the banks play their proper role we will not see the economic growth that we need.
Secondly, we need proper financial support for industry. We have been too hidebound by a fear of talking about picking winners. This has inhabited Governments—I include my Government in this—from playing their proper role in the economy. Of course that has to be done with care and with discerning judgment, but if we want to take advantage of the economic opportunities of the future—the transition to low carbon, the opportunities presented by the digital economy and other such matters—Government must play their role. As my hon. Friend the Member for Leeds West (Rachel Reeves) said, what happened at Sheffield Forgemasters was not just a lost opportunity for one company but a lost opportunity for the country, because it could have made us a world leader in civil nuclear supply.
Let me say one more word about that project. The Government, having run out of excuses, now say, “It is a good project, but it’s unaffordable,” while in the same breath boasting about having a regional growth fund of £1.4 billion. If they really have that regional growth fund, why was its first decision not to reverse that mistake and grant the loan to Sheffield Forgemasters? I approve of the action taken on AgustaWestland, but I do not see the difference between the two proposals.
Thirdly, we must do better on sub-national economic growth and development. The Government have abolished eight regional development agencies and we now have what the director general of the CBI calls “a shambles” coming to replace them. The process appears to be being run not by the Department for Business, Innovation and Skills but by the Department for Communities and Local Government. It has to be rescued, or it will do real economic damage.
More points could be made in the debate, but they will have to be made by others given the time limits. There is a profound difference in our view: the Government are engaged in faith-based economics, stepping out of the way, whereas we believe in an active role for Government in securing economic growth.