Self-Employment

Toby Perkins Excerpts

Tuesday 24th January 2012 Westminster Hall

[Richard Harrington (Watford) (Con)]

It is a pleasure to serve under your chairmanship, Mrs Riordan, and I am pleased to see so many hon. Members present, particularly the Minister for Further Education, Skills and Lifelong Learning and the shadow Minister, the hon. Member for Chesterfield (Toby Perkins).

This debate came about as a result of a conversation between me and my hon. Friend the Member for Wyre Forest (Mark Garnier), who is sitting next to me, about people in this country setting up their own businesses. We reached the conclusion that not enough people do so. Everybody knows the benefits of people setting up their own businesses, but there is a certain culture against self-employment and business in this country, notwithstanding everything that this and the previous Government have tried to do. Politicians brand the terms “entrepreneur,” “small and medium-sized enterprises” and similar without really understanding what they are about. My hon. Friend and I have, therefore, decided to focus the debate on how Governments can change attitudes.

Like so many people of my generation, I was the first member of my family ever to go to university. Few people at that time had the idea of setting up their own business, and I do not think that much has changed. I have two sons, one in his late teens and the other in his early 20s, and from what I have observed of my family life, as well as that of my sons’ friends and during my constituency duty of visiting schools—some very good, others not so good—and further education colleges, there is very little idea, culture or yearning among people, from the most academically gifted to the least so, to set up their own business. However, I commend people such as my hon. Friend the Member for Newton Abbot (Anne Marie Morris), whom I am pleased to see and who is co-chair of the all-party group on micro-businesses. Others have also tried very hard in the main Chamber, as well as elsewhere in the Palace of Westminster and throughout the country, to help the cause of small business. The Government themselves have also made a lot of effort, and I do not feel that it would be right for me to criticise them.

This debate will be divided into two halves. I will deal with social, cultural and educational barriers, and what I think the Government might do about them. My hon. Friend the Member for Wyre Forest will then deal with taxation, regulation and other more direct governmental aspects. It is also nice to see so many other hon. Members present who want to take part.

On the face of it, self-employment seems to be going well. Recent figures show that 300,000 people have become self-employed in the past year, which means that they are registered with Her Majesty’s Revenue and Customs as being self-employed, but I do not think that that necessarily means that they have set up their own business. Some of them will, legitimately, have taken on part-time functions that classify as self-employment. I do not want to get into a political debate about whether that is self-employment or not, or whether the recession is to blame, because I want to focus on a culture that will give ambitious young people the desire to set up their own business.

The education system is the most important opinion-former for young people, and many aspects of it are encouraging. Like many other hon. Members, I have Young Enterprise groups in my constituency. We have Hertfordshire Young Enterprise in Watford, and I have seen many teams of young people setting up little businesses at school. They are largely supported by voluntary contributions from local businesses and they get mentors. In fact, only last Saturday, there was a display of the best teams at the Harlequin centre in Watford, which is well known to some Members present and to those more illustrious alumnae of the better Watford girls school—without naming names—whom I am also pleased to see present. It is interesting to see that these teams set up real businesses, producing bracelets, handbooks and all sorts of things. Some of the products make them a bit of money, and it is good to see local businesspeople helping them. This, however, is only useful if it gives those young people a desire to say that, when they graduate—assuming that they want to go to university; I am not saying that that is necessarily the most important thing—they want to set up a business, but I do not find that to be the case.

I recently visited Watford grammar school for boys, which is one of the better schools in the country— 30 boys are going to Oxford or Cambridge this year. After I finish my talk to the sixth form, I always ask them what they want to do after university—most of them go to university, but I would ask a similar question at a school where not so many pupils do so. When I ask how many want to be lawyers, accountants or involved in advertising or the media, many hands go up, but when I ask who wants to set up their own business, very few want to do so, including those who have taken part in the education system’s successful schemes.

[Toby Perkins (Chesterfield) (Lab)]

The hon. Gentleman is making an important case for the role that education can play. Another part of getting young people excited about running their own business is the experience of those who do so at the moment. Today’s Financial Times includes an article on an Aviva report that involved interviewing 500 owners of SMEs for its research. A quarter of them said that they were considering returning to work as an employee, because of how difficult it is at the moment to run a small business. When people who actually run their own business find it that difficult, will it not be more difficult to persuade young people to do so?

[Richard Harrington]

The shadow Minister makes a valid point. I read that article in the Financial Times online—if I cannot sleep at 3 o’clock in the morning, I find that that is the best way to get back to sleep. It focused on the general problems of the economy and how much more difficult it is for people who are self-employed and have their own business. Some of those people look towards employment as an answer, and I do not disagree with anything that was said. I am sure that some people want to go back to the comparative security of employment, but I do not think that that changes my main argument. People becoming self-employed and setting up their own businesses is one of the most important things for this country to expand the economy.

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[Richard Harrington]

That is an exceptionally good point, and I am sorry that my hon. Friend, like me, in later life has had to do the job that we are doing now instead of being in business. However, I know that he, like me, benefited greatly from his time in business. His serious point was well made. The alternative of salaried employment for a company is not secure either, and many people lose their jobs. My generation may be the last one that believed that the professions provided a job for life. There is a risk element now.

I return to my university college, which I hope the Minister will immediately decide should be located in Watford, because that is the obvious place for it. Watford is a good example for small businesses. It used to depend on two heavy industries—printing and lorries—but it now has more than 1,600 small businesses, and the employment background is small business, so Watford would be a suitable place for the college. It would be an ideal location because of being well known internationally as a centre for commerce, culture, intellect and so on.

My serious point is that the Government, with all the excellent measures that they are taking, should consider introducing a degree on setting up a business—obviously, that is not what it would be called—helped by local business people who would agree to take part for perhaps two or three days a week. Students could set up real businesses that would go on to provide real employment for people. That is where academia should meet the practicality of setting up a business.

[Toby Perkins]

rose—

[Richard Harrington]

I will happily give way to the hon. Gentleman, but my hon. Friend the Member for Maidstone and The Weald (Mrs Grant) rose first.

[Richard Harrington]

I agree with my hon. Friend, and my hon. Friend the Member for Wyre Forest will speak about that.

[Toby Perkins]

I want to explore the hon. Gentleman’s idea. He has rightly identified that many successful entrepreneurs with great business careers were not academically inclined, and perhaps those who have that motivation and spark do not sit well with long periods of study. How does he square that argument with his idea that people should undertake three or four years of study to set up a small business, when many of the best small business people have been instinctively brilliant rather than studiously and academically brilliant?

[Richard Harrington]

I have to accept the logic of that point. Not everyone who wants to go into business would go to the sort of college that I am proposing. Many people would start businesses as happens now. Many people who have been in employment may decide when they become a bit older that that is for them. There are different routes to the same objective. However, I believe that an all-star college with teaching by people such as Sir Richard Branson and senior politicians and business people—people who have been in business—would show that the Government are serious, and that the status of such a course is as good as those at Oxford, Cambridge and so on. It is wrong for people of my age to use the expressions of younger people, but that would show that it is cool to set up a business, and just as good as anything else. In addition to the many other things that the Government do, they could help with that, and it would not cost too much money.

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[Mark Garnier]

I agree. Our complex tax code is full of all sorts of unintended consequences exactly like the one that my hon. Friend mentioned. It is ridiculous having a tax that means businesses going above £73,000 will have to start charging their customers. That is a disincentive to growth in terms of going out and gathering business. If people stay below that threshold, it is a disincentive to employ more people.

[Toby Perkins]

The hon. Gentleman is talking about the difficulty with taxation faced by small firms. Will he support Opposition Members calling for a national insurance holiday for any micro-business with less than 10 employees that takes on a new member of staff?

[Mark Garnier]

A national insurance holiday? I think that we are already doing it. That is a policy of ours.

[Toby Perkins]

For micro-business.

[Mark Garnier]

I am sorry; the hon. Gentleman is talking about extending it to micro-businesses. Yes, all this has to be put into the mix of things that we need to look at. It is important to consider any way that we can help more micro-businesses.

FSB members say that our tax system is detrimental to their ability to make capital investments in their business, which again is another reason why people are being held back.

On a wider social point—sticking with tax complexity—it is worth noting that a complex tax system allows a huge range of opportunities for tax avoidance and tax evasion, which makes it extraordinarily complex for Her Majesty’s Revenue and Customs to collect tax and ensure that we avoid the tax gap, which is estimated at anything between £40 billion and more than £100 billion a year. The rest of us have to pay for that tax gap and lack of revenue through increased taxes.

Half of small businesses spend at least two hours every week complying with their tax responsibilities alone and for 10% of businesses, particularly small micro-businesses, that can take up to six hours per week—six hours when those businesses should be capturing new customers, developing new products and investing in their future.

Two thirds of businesses feel that they need professional help to complete their tax returns, which costs them on average an extra £3,000 a year. One third of them find that national insurance in its various forms is difficult to understand. Half of businesses find allowances difficult to get to grips with. Frankly, it is all far too complicated and too expensive in man hours and financial resource to administer.

Regulation is the second area of extreme unrest for micro-businesses. According to the World Economic Forum’s global competitiveness report, the UK is ranked 89th out of 139 for the burden that regulation places on businesses. Aside from the obvious problem of possibly deterring inward investment, the overburden of regulation, especially in the realm of employment law, is cited by businesses as a reason not to expand.

In a business survey in 2008—that was some time ago, but it gives a good idea of trends—a third of businesses thinking about expanding cited fear of regulation as a significant headwind to be faced in expansion and therefore a key factor in their decision. The same survey revealed that half of businesses planning to downsize or close rated regulatory burden as important in their decision to do so. The 2008 survey was undertaken in difficult trading conditions, but regulatory burden should not be a significant factor when businesses are struggling to stay alive in a difficult environment.

Possibly more worrying is the fact that in the 2009 business survey 34% of businesses that were no longer employers cited complying with legislation as a reason for no longer employing staff. This is madness.

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[Toby Perkins (Chesterfield) (Lab)]

It is a great pleasure to speak under your chairmanship, Mr Streeter, even if only for 10 minutes. It has been an excellent debate and I congratulate the hon. Member for Watford (Richard Harrington) on obtaining it and on his speech.

Like some other hon. Members, I have run my own business—twice: the first time was at the back end of the last century, when I set up an IT recruitment firm; subsequently in 2005 I launched a rugby product business, Club Rugby, which I continued to run until I was elected. As someone who has been on that journey twice, I know very well the different motivations for heading towards self-employment. In my case, it was inspiration on one occasion and desperation on another. In fact, many great businesses have been created from fledgling inspirations caused by the desperation of those trying to feed a family and keep a roof over their heads in tough times. Certainly, some will still thrive in these most desperate of times. However, the fact that some will still come through, and that the strongest may still thrive and survive, is not a reason for the Government not to do everything in their power to support people in all walks of life and all parts of the country to take that first brave step and put their name above the door.

One of the lessons of the recent past is that we must create an environment that gives the greatest number of new business people an opportunity to be a successful business owner. Why would any Government not want to do that? Therefore I particularly welcome a debate in which the hon. Member for Watford expressed his frustration at what he sees as the unglamorous image of running a business in Britain today. Of course, he is right to say that we all—politicians, school teachers, careers advisers, business leaders, media figures and trade union leaders—have a responsibility to promote the vital importance of new start-ups and small businesses in creating the growth we need to get the economy moving again. For that reason I welcome television programmes such as “The Apprentice” and “Dragons’ Den”, which for all their flaws at least tend to get young people to see business in a sexier light.

[Justin Tomlinson (North Swindon) (Con)]

Will the hon. Gentleman give way?

[Toby Perkins]

I am afraid that there is not time, if I am going to leave time for the Minister.

“The Apprentice” in particular also has a welcome focus on the importance of sales techniques and ability, which is a vital and intrinsic part of business success, which the nation has neglected for too long, and which I want to promote through the Labour party’s policy review. I started my first job in sales at the age of 17. The old adage that until someone sells something in a business nothing happens has never been truer than it is today. As part of the Labour policy review programme Nigel Doughty, a tremendously successful business investor, is chairing our small business task force. Within that policy review process, he hosted a session on high-growth businesses. There were many contributors to that session from across the business spectrum, but one of the key defining facts revealed during it was that about 7% of all businesses will go on to become high-growth firms, irrespective of market sector or geographical location. The key to getting more high-growth firms coming out of the bottom of the funnel is to get more going into the top.

Of course, we have been here before. Starting in 1997, Labour’s new deal programme was the most successful back-to-work programme in British history. The self-employment programme was the most successful part of it. Some 70% of the people who started on it went into business, and 81% of those businesses were still trading three years later. Moreover, they were employing, on average, an extra 1.6 people each, meaning that for every 100 people who started on the programme, 112 were employed three years later as a result. That may be the first and only back-to-work programme ever to have a greater than 100% success rate.

The key features of the success of that programme that are not being duplicated by the current Government’s back-to-work programme are the special provision with a ring-fenced pot of new deal money specifically for the self-employment option and the financial cushion in the early stages of self-employment, which was so important in giving new business people an opportunity to test trading as a viable career option. In that context, the void in face-to-face business advice left in the absence of Business Link is deeply worrying.

It is a key aim of the Government to encourage the unemployed to look towards self-employment as a viable career option, and we entirely support them in that general aspiration. However, we must also be aware of the dangers of false self-employment. Bogus self-employment has rocketed in the past decade, particularly in the construction industry. Workers are often told that they will be taken on only if they agree to declare themselves self-employed, thus giving up hard-won employee entitlements such as national insurance contributions, and sick and holiday pay. Recognition of the unique challenges that the unemployed face in setting up new firms or becoming sole traders must lead to specific actions to support them into self-employment. The unemployed are less likely to have the cash to enable them to set up in business, and less likely to be able to borrow money towards start-up costs. They are likely to be less able to cope with the early cash flow shortages that are often inevitable for fledgling businesses.

As a Member of Parliament, I am a publicly employed representative of the people, who earns about £64,000 a year. Yet if I decide to write an article, provide advice or even take on a directorship to provide me with extra income, I am legally entitled to do so. However, if an unemployed person on £65 a week wants to see whether they can make a go of a business as a painter or hairdresser and does a few jobs before coming off benefits, they are committing a criminal offence. In the new deal, there was an opportunity to recognise the fact that the informal economy plays an important part in helping people to move from unemployment to self-employment.

On the new deal programme, the test trading aspect entitled people who were unemployed to enter the world of self-employment with a six-month financial cushion between leaving benefits and setting up. Subsequently the tax credit system replaced that financial cushion. Originally there was hope that the universal credit would also be an effective tool. However, as it is currently structured it works on the narrow basis of a set number of hours and set earnings, which does not fit easily with the self-employment model. Under Labour’s policy review, we are investigating an enterprise credit that would recognise the flexibility of income derived from self-employment and replace that all-important cushion to give new start-ups the security that they need.

I want to touch on a couple of speeches by other hon. Members. The hon. Member for Watford talked about the sleepless nights that often come with running one’s own business—and, indeed, we are led to believe, with being a Conservative Member of Parliament. He expanded on his wife’s role and the lack of help that she provides him with on those occasions, which she may wish to discuss with him at a future date. He also talked about children who want to go into fields such as advertising or marketing, but who do not see setting up their own business as a viable or exciting option. He rightly mentioned the huge social value in setting up a business and going on to provide employment to other members of the community.

The hon. Member for Wyre Forest (Mark Garnier) supported Labour’s policy on a national insurance holiday for micro-businesses that take on a new member of staff. He was also right behind us on pushing the Government to take forward the late payments directive. We thank him for that support. I hope that he will be successful in persuading other hon. Members to be equally enlightened.

The hon. Member for Newton Abbot (Anne Marie Morris) shared my concern that the “mentors me” website may not provide enough support for new businesses, and she expressed the importance of that. The hon. Member for Selby and Ainsty (Nigel Adams) said how important it is to celebrate entrepreneurship and highlight people’s success. The hon. Members for Nuneaton (Mr Jones) and for Meon Valley (George Hollingbery) warned us not to give a sugar-coated view of the ease of running a business. In doing that, however, I feel that the hon. Member for Nuneaton added to the myth that Britain has a particularly difficult regulatory system. The reality discovered by the World Bank is that Britain is the easiest place to set up a new business anywhere in the EU and the fourth easiest place in the world. It is important that hon. Members speak up for all the positive aspects of running one’s own business and do not exaggerate the difficulties.

There is a broader context to the discussion. When the Government have choked off the recovery with their anti-growth policies, they cannot seriously expect the private sector to provide the growth that we so desperately need. That is why we have put growth at the heart of our five-point plan and why we called for a temporary cut in VAT; it is why we supported the call by the Federation of Small Businesses for a cut to a rate of 5% for VAT on home improvements; and it is why we are calling for a national insurance holiday for micro-businesses to boost employment at small firms.

People want more than gimmicks from Government. They want a genuine programme for growth. Where the Government deliver that, they will have our support. We recognise the vital role that self-employment can play in delivering growth, creating jobs, reducing unemployment and, most of all, giving people back their pride and their sense of belief. They need have no doubt whatever about Labour’s commitment. After all, we got Britain working for itself before.

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[Mr Hayes]

No, will not, because of time. Forgive me. Chesterton said that those who were impatient enough to interrupt the words of others seldom have the patience to think of good words themselves. I put on record that that is not true of my hon. Friend, but just in case, I will not give way.

My hon. Friend the Member for Selby and Ainsty (Nigel Adams) spoke about the importance of finance. My hon. Friend the Member for Nuneaton (Mr Jones) discussed enterprise and small business, and what a champion he is for the small businesses of Britain. My hon. Friend the Member for Wyre Forest (Mark Garnier) spoke about tax and the importance of having the right tax regime. My hon. Friend the Member for Maidstone and The Weald (Mrs Grant), who is no longer in her place, made a useful contribution on information about careers. My hon. Friend the Member for Montgomeryshire (Glyn Davies) made a point about the disproportionate effect of regulation on very small businesses. My hon. Friend the Member for Selby and Ainsty also mentioned skills, my hon. Friend the Member for Newton Abbot (Anne Marie Morris) mentioned mentoring and my hon. Friend the Member for Meon Valley (George Hollingbery) discussed the communal value of business. I think that I have covered most of hon. Members’ contributions. If I have not, I apologise. They were all immensely valuable, and are valued by the Government.

It is important to recognise the critical role that small business in particular plays in our economy. As an expert on these matters, Mr Streeter, you will know that small and medium-size enterprises are a crucial engine for growth and are critical to our national economic success in every sector. Together, they are responsible for almost half the private sector’s £900 billion output and 60% of private sector jobs. Since 2000, the 31% increase in businesses has been driven entirely by SMEs. Small business is the backbone of our nation and the driver of innovation. It is the embodiment of enterprise, because it is in start-up businesses that ideas have their genesis and subsequently germinate. Every business starts as a small business.

Politely—almost flatteringly—several Members referred to my own business career. I was lucky in business. All success in business is a combination of good luck and good judgment. I entered the IT industry when it was growing; what a great place it was to be in the 1980s. I learned there that politicians must be sensitive to the needs of business. They particularly need to understand that by and large, businesses want politicians to get off their back and on their side. The Government play their part through regulation, the tax system, information, support and pump-priming, but they must step back to let business thrive.

Having said that, I will mention the 10 things that Government can do, in the six minutes available to me. First, we are focusing on education. We are establishing an enterprise village website, which we will develop further, enabling teachers to access free online resources to assist them in developing school businesses. Secondly, on the “inspiring the future” website, we have made more information available about business and business education to at least 2,500 local enterprise champions and role models.

Thirdly, the National Association of College and University Entrepreneurs, which was mentioned in the debate, is building sustainable national infrastructure to develop and drive forward student enterprise societies across higher education institutions and further education colleges. I expect about 90 universities and 160 FE colleges to be involved in that initiative. Fourthly, reducing the small profits rate from 21% to 20% from April 2011 and reversing the previous Administration’s plans to raise the rate to 22% will undoubtedly help business.

Fifthly, we have increased the national insurance contributions threshold for all employers by £21 a week above indexation from April 2011, reversing the previous Government’s plan, which I think the hon. Member for Chesterfield (Toby Perkins) failed to mention because he is embarrassed about it. He is a decent and honest man, so I can understand his embarrassment, and I will not dwell on it further.

[Toby Perkins]

Will the Minister give way?

[Mr Hayes]

No, I cannot, because of time.

Sixthly, the Government also know that ensuring the flow of credit to viable small businesses is essential and a core priority for the Government. We want to ensure that the financial sector can supply the affordable credit that businesses need, and we would like to see more sources of credit and finance. I accept that banks have a role, but other organisations need to play their part too.

Seventhly, in April, we will launch a new seed enterprise investment scheme to encourage investment in new start-up companies. Eighthly, at the same time, we are launching two new Business Link services with an additional investment of £1.2 million and a new initiative to recruit and train 15,000 volunteer business mentors, which numerous people have welcomed during the debate.

Ninthly, as I am sure you know, Mr Streeter, the Government have placed great emphasis on start-up Britain. This is the year of enterprise. We want everyone to know what is happening in the UK, to promote enterprise and to give young people who wish to set up a business access to diverse sources of finance. We want to support SMEs with improved information and streamline the process by which they and others can get the knowledge and information that they require to set up their business.

Tenthly, the introduction of a national loan guarantee scheme to help businesses raise funds from non-bank sources, the £1 billion finance partnership to invest in medium-sized businesses and SMEs, the continuation of the enterprise finance guarantee scheme, a new export enterprise finance guarantee scheme, the continuation of the Government’s enterprise capital funds programme and, of course, the encouragement of the business angels scheme that we established will give businesses the boost that they need.

What has been repeated in speeches throughout this debate is that we need to change the culture to one that recognises that business has not only a communal role in delivering the growth that we need to prosper but also a vital role in enabling many of our citizens to achieve their potential to be the best they can be and, through that role, to create jobs and growth, seeding recovery in every community in Britain. The problem in Britain is not that none of that exists; far from it. We know from our constituencies and our personal business experience that that spirit exists. The problem is creating circumstances that allow it to thrive.

In those terms, the contrast between this Government and the last is profound. There is no doubt that the last Government were starry-eyed about the glitz and glamour of money, but it is clear that they were blind to the needs of small business and enterprise in particular. I hope that there has been a change, as the hon. Member for Chesterfield said. My hope is that we can understand throughout the House that business is virtuous, because it builds jobs, sustains growth and fuels healthy communities. My business is the promotion of growth, and my mission is the pursuit of the common good. It is clear that in that mission, I have the support of many colleagues in my party and throughout the House who share my enthusiasm for British business and my determination that business will prosper under this Government.