Economic Growth and Employment

Debate between Siobhain McDonagh and Mark Lazarowicz

Wednesday 23rd November 2011 Commons Chamber

[Siobhain McDonagh (Mitcham and Morden) (Lab)]

It is easy to launch into a debate about the macro policy, but we all represent individual businesses. The most frustrating thing for our electors, whatever seat we represent, is the gap between Government policy and rhetoric, and the reality on the ground. I would like to use three businesses in my constituency to illustrate the way in which Government policy is damaging growth.

The first businessman, who should remain anonymous, is a local plumber, known to Members in all parts of the House because he has replaced many MPs’ bathrooms. He faces a dilemma because of the increase in VAT to 20%. After 40 years in the industry, he tells me that the increase has become a psychological barrier for many customers, as they are immediately able to work out the amounts involved. People understand what they are paying much more than they do when the rate is 15% or 17.5%. He is afraid that the VAT increase is a double whammy for the economy. First, there will be more VAT avoidance and the tax take will fall, thereby making it harder to reduce the deficit. Secondly, the increase will lead to people not doing jobs around their homes, which will stifle economic growth. The Opposition have said that we want to reverse the VAT rise and have a one-year cut to 5% on home improvements. I strongly believe that we should analyse the impact of the VAT increase on small businesses, in the long-term financial interests of the country.

The second concern is about banks’ lending policies. Terry Withers, of Admiral Scaffolding, a company of 20 years’ standing, says that Government-backed RBS refused to let the business go overdrawn by just £5,000, even though it was the first time he had ever asked for an overdraft and the business had uncleared cheques going through its account worth £26,000. The company was also refused a loan that would have seen it convert all its vehicles to the latest green technology and expand its scaffolding kit, which in turn would have allowed it to increase the number of people it employs from 100 to 140. Mr Withers says that he is exactly the sort of business man who has lost out because of the failure of the Government’s Project Merlin.

In the first three quarters of the year, over half the SMEs applying for an overdraft for the first time were refused. A few months ago, when I took up the case of another business in a similar position, the Merton chamber of commerce told me that local firms were pessimistic about the future because of constraints on their working capital and the difficulty of raising finances. No wonder the CBI has found that almost two thirds of business leaders are considering changing their work force plans. The truth is that, so far, the Government have been unable to make the banks lend—that includes even our own banks, such as RBS—and when the banks refuse, direct Government help is pitiful.

My third case concerns Her Majesty’s Revenue and Customs. I would like to take this opportunity to voice my anger about its disgraceful attitude when dealing with MPs’ casework. I have always had difficulties in dealing with HMRC. In the most recent case, which was brought to my attention by Simon Walker of SPS Timber, a window manufacturer and replacement company in my constituency, I wrote to HMRC in August. It wrote back nearly four weeks later to say that it hoped to reply to me by November. Then when the reply came it was full of inaccuracies. The issue concerned HMRC’s penalties for late cheques for payroll. Mr Walker says that HMRC had not told him of the penalties. He argues that those penalties are a false economy, as they could be the breaking point for some small firms.

HMRC’s reply described a letter allegedly sent to Mr Walker in May, even though Mr Walker says that he keeps all his correspondence and has received nothing. My visit to his business showed him to be an assiduous record-keeper. HMRC admits to not having any record of the letter it sent him. HMRC claims that it spoke to a “Catherine Walker” about this in October, but nobody of that name works for the company, and in any case this was months after the penalties were charged. My telephone conversations have been just as infuriating. I am sure I am not the only Member who finds HMRC utterly unsatisfactory.

[Mark Lazarowicz]

My hon. Friend may recall that the hon. Member for Skipton and Ripon (Julian Smith) said a few moments ago that we were arrogant in raising these issues, but she is absolutely right to raise all the concerns of our constituents. We do not raise them because we are arrogant, but because we see the effects of Government policy on our constituents every day. We know that the Government might be trying to a certain extent, but what they are doing is not good enough and it is not working. That is why we want action now to deal with people’s problems with tax and unemployment—and it must be more than what the Government are doing already.

[Siobhain McDonagh]

I agree completely with my hon. Friend. I am making this speech because I want the Government to be sure that they know what individual small businesses and manufacturing businesses are saying on the ground.