Small Businesses

William Bain Excerpts

Thursday 28th November 2013 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

rose—

[Chris Heaton-Harris (Daventry) (Con)]

Follow that!

[Mr Bain]

Indeed; it is a great pleasure to follow the tremendous speech by the hon. Member for Newton Abbot (Anne Marie Morris). I thank her and the Backbench Business Committee for scheduling the debate.

I represent a constituency that has one of the largest problems of family poverty and long-term unemployment in this country, but it also has some rapidly expanding SMEs. I have been in contact this week with Gaia-Wind, which is the fastest growing private company in Scotland and the eighth fastest growing SME anywhere in the UK, to hear its exciting plans for expansion. It also, however, shows us some of the particular needs of participants in the green economy and the problems that they face.

There is a lack of investment in our economy. We discovered yesterday that investment by businesses has been largely flat over the past year. In fact, business investment contributed only 0.1 percentage points to the 0.8% of GDP growth in the third quarter. We also know that access to finance is a huge problem for the SME sector. Although the small regional banks in Germany, the Sparkassen, were able to keep lending to support SMEs during the recession, lending by institutions in this country, such as the Royal Bank of Scotland, shamefully fell to spectacularly low levels, which had a huge and disproportionate impact on the SME sector.

In the coming weeks, we will celebrate the contribution that small business makes to our local economies and the national economy. We will celebrate the fact that there are 4.9 million businesses in this country employing 24.3 million people. However, we must be aware of the need to take firm action on business rates, the need to expand the range of financial institutions that are able to lend to SMEs, and the need to do much more on skills, and research and development.

[Julian Smith (Skipton and Ripon) (Con)]

Will the hon. Gentleman also celebrate the excellent, detailed, cross-departmental work that the Government have done to support British businesses—big, small and medium—and to get the economy in a position to turn a corner and move into accelerated growth?

[Mr Bain]

I certainly will not celebrate the three years in which we have had very little growth, which had a huge impact on SMEs. With respect to the hon. Gentleman, I want to speak about the positive issues on which we might find more cross-party agreement in this debate.

I refer hon. Members to the excellent report that Santander and Dods published recently in the House. It contains key recommendations that the Government should attend to quickly. It shows that 285 separate schemes are available to SMEs which, in the view of the report’s writers, is far too many. It sets out the good recommendation, which the Government could implement straight away, of developing a single portal through which SMEs can have contact with central Government. The report found that only 29% of SMEs were aware of the existence of the funding for lending scheme and that 28% of businesses thought that access to finance would be the biggest impediment to growth in the next few years.

Shockingly, the report revealed that only 12% of students in our colleges and universities would make working for an SME their first choice on graduation. That is a real concern, given that the vast majority of job creation in the coming years is likely to come from the SME sector, and it shows that there is much more that the Government, SMEs, colleges, universities and schools need to do to promote founding and working in small businesses as good career paths.

As a country, we need to do far more work on skills. Only yesterday, the Minister illustrated in a written answer to me the growing gap in early rates of pay between those who have level 4 skills and those without any qualifications at all. That hourly pay gap of £8.84 has widened by a tenth in the past six years alone. SMEs, the Government and local authorities need to do a huge amount to improve in-work training so that people can see wage progression in a job, and so that a job in a small or medium-sized enterprise can become a career with long-term prospects.

We need to improve the shockingly low rates of research and development in this country. In public and private sector research and development, we lag way behind our main competitors in the EU and many of the emerging markets. The Government must do much more to boost the innovation that comes from the many millions of small businesses throughout the country, such as Gaia-Wind in my constituency.

As a matter of urgency, we need to improve access to capital. When I speak to SMEs in my constituency, they make it clear that they are willing and able to take on more staff, and that they want to create more demand across our country. However, the banking system is simply not working for SMEs. We need new players to come into the banking system and regional banks that focus on the needs of the economies in Scotland, Wales, Northern Ireland and the different regions of England.

[Huw Irranca-Davies (Ogmore) (Lab)]

Does my hon. Friend agree that if that is to work, the regional banks in all parts of the UK, including Wales, need to be driven by entrepreneurial zeal, rather than a civil service ethos?

[Mr Bain]

My hon. Friend raises the important point that we need a culture of long-term investment, as has happened over the past few decades in Germany, where there has been strong support for SMEs from the Government and the financial institutions. We need to see more of that in this country and it would be best delivered through a system of regional banks that provide support to business on a dedicated, local basis.

Finally, in this most significant of weeks for Scotland, I must say that it is critical that the SME community speaks out on the question of Scotland’s continued membership of the United Kingdom. It would be disastrous for Scotland’s trade with the rest of the UK and disastrous for exporters if Scotland were forced out of the United Kingdom. It is important that all of us in the House encourage business to speak out on the need to keep the Union together.

I am incredibly supportive of small businesses in my constituency, and I look forward to hearing a positive debate among Members on both sides of the House.

--- Later in debate ---

[Debbie Abrahams]

I thank the hon. Gentleman for his intervention, if slightly patronising. I have gone into the issue in quite a bit of detail, and it was a specific point about late payments.

Let me give a bit of background to this case. As I said, the story of Ann and Harry Long is far from unique and is a particular problem for small and micro-businesses that do not have the cash-flow buffers of larger companies. I have a particularly a high level of micro-companies in my constituency—more than 85% of companies have fewer than 10 employees—and a number have gone into administration, primarily as a result of late payments.

Nationally, we know from Bacs that more than £31 billion is owed to small businesses, and more than half—58%—of the country’s 1.7 million SMEs say that large companies choose when they pay. In 2011, only £24 billion was owed, so the problem is increasing. If we compare what is owed in late payments to the amounts being lent by high street banks, which last year was £56 billion, we sense the scale of the problem.

According to Bacs data, the average SME is owed £31,000 at any one time and waits an average of eight working weeks for payment, which is nearly double the contract terms. I am particularly concerned about the gaping north-south divide. Small businesses in the north say that they are owed an average of £39,000, which is almost double the £23,000 owed to the average southern business.

The 2012 small business survey reported that 55% of SMEs, 53% of small businesses and 46% of micro-businesses say that large companies are not paying their bills on time. The most recent Federation of Small Businesses survey suggests an even worse picture. Seventy-three per cent. of businesses say that they were paid late in the past 12 months, and one in five say that half of all invoices are paid late. Interestingly, 70% say that the problem has got worse in the past 12 months and that the private sector is the biggest culprit.

Research by the Forum of Private Business last year indicated that late payment is having a significant impact on businesses development, productivity and growth. Access to, and the cost of, finance, and credit trade insurance, were cited as problems linked to late payment. Late payments have a knock-on effect, leaving many small businesses in a vicious cycle of late payment. The FPB’s economy watch panel indicates that 42% of SMEs believe that late payments were not seen as important.

As we have heard, the impact of late payment can be disastrous. It is estimated that, during the 2008 recession, 4,000 businesses failed as a direct result of late payments. No official data have been collected, but the situation needs to be monitored. There is growing evidence that late payments to SMEs are hurting our economic recovery. Office for National Statistics data show that SMEs make up to 98% of the total number of organisations, providing 59% of all private sector jobs and 45% of all employment, and generating 46% of the UK’s income.

What is being done to tackle the problem of late payments? The previous Government introduced the Late Payment of Commercial Debts (Interest) Act 1998, but it was not used, because companies feared being blacklisted. The prompt payment code, a tool introduced by the Institute of Credit Management, committed signatories to pay suppliers on time under the terms agreed without attempting to change payment terms retrospectively, enabling every level of the supply chain to meet the terms. However, the code has had mixed effects. First, there is a very poor take-up by FTSE 100 companies.

[Mr Bain]

My hon. Friend makes a powerful argument. What does she make of the National Audit Office recommendation that Government Departments need to work more closely together, and that the Department for Business, Innovation and Skills and the Treasury need to work harder to support small businesses in the way she indicates?

[Debbie Abrahams]

My hon. Friend makes a good point. We need to encourage that.

People are abusing the prompt payment code. They are either signing up and changing their terms, or changing their terms prior to signing. Most recently, the EU late payment directive stipulated that public authority-to-business invoices must be paid in 30 days, and that business-to-business invoices should be paid in 60 days. However, there have been problems with the transposition into UK law. Section 7 of the directive has not been taken up and independent organisations will be unable to use it to help small businesses.

Another development last year was the introduction of the small chain finance scheme. That is another difficult problem.

--- Later in debate ---

[Huw Irranca-Davies (Ogmore) (Lab)]

I welcome this debate and compliment the hon. Member for Newton Abbot (Anne Marie Morris) and the other Members who secured it through the Backbench Business Committee.

I want to begin by putting a human face on this debate. Several people have talked about the definition of small businesses. For me, that definition could include Worgan’s in Llanharry, a small, family-run enterprise that started as a small gift shop selling various things for the local community, but which extended by opening a café in the next-door premises and then a mobile chip shop. The definition could also include the former Sony site in Bridgend. Sony went through a difficult time when the market for cathode ray tube televisions completely fell apart—when flat-screen televisions came in, those jobs quickly went abroad—but the management retained the skilled work force and rebuilt the business on the basis of high-end engineering and their massive expertise in design, engineering and manufacturing. Working alongside other companies, it has built itself back up and now has 500 employees onsite, 150 of whom work in 28 incubation companies—small companies, built up with the assistance of Sony expertise, working in digital media, graphics, television and many areas, and supported as they grow from micro-businesses into small businesses and, we hope, into the giants of tomorrow.

The definition of small business could also include Ferrier’s, a local estate agent on Commercial street, in Maesteg, where my office is based. It was established in 1918—by coincidence, that was the same year Labour first won the seat of Ogmore, so I hope we will both shortly be celebrating our 100th anniversary—and it has extended to open other outlets in Kenfig Hill and elsewhere. There is a wide range of businesses. I think of Cwm Tawel Yurts, a tourism enterprise in a beautiful little valley around Betws, and of the Food Box. Then there are two brothers on the Maesteg industrial estate who left my state comprehensive school, one going on to study applied sciences, the other, following a different path, management. They came back together and established a 3D engineering company that did all the things expected from 3D engineering, but which has also now extended into life sciences. It applies 3D engineering to the life sciences, uses 3D modelling in the development of things such as heart valves that grow organically within the body and it supplies tiny parts that help the space station run.

In talking about the 99% of small and medium-sized businesses, we recognise that they are diverse, which gives them some resilience; that they are fragile, as my hon. Friend the Member for Rochdale (Simon Danczuk) said; and that they need the right support structures in place to assist them to thrive and grow.

[Mr Bain]

We have a burgeoning life sciences sector in Glasgow, too. Does my hon. Friend agree that the National Audit Office made a powerful point when it said that there is a potential funding gap of some £22 billion in the finance available to small businesses between now and 2017. Would it not help small businesses in his constituency and mine if the Government did something with the banks to help plug that gap?

[Huw Irranca-Davies]

My hon. Friend makes a valid point. There has to be cross-party agreement to take this forward and to ensure that finance is available.

Let me mention one stark figure. Even though there are signs of optimism in some parts and some sectors of the Welsh economy, a recent survey of members of the Federation of Small Businesses in Wales showed 55% of them reporting that credit was unaffordable, while 65% said it was not only unaffordable but completely inaccessible. The idea that these businesses can grow by getting affordable and accessible lending is simply not happening, which is a tragedy.

--- Later in debate ---

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

I am pleased to have an opportunity to speak. I congratulate the hon. Member for Newton Abbot (Anne Marie Morris) and her colleagues on persuading the Backbench Business Committee to grant the debate.

Small businesses play a major role in all our constituencies —mine is certainly no exception. They are important to the economy not just in their own right, but because they provide vital underpinning for many larger businesses in other economic sectors. They also play a vital role in maintaining healthy local communities through, for instance, their presence in shopping centres.

It is understandable that Members want to be positive in such a debate. Most of what I say will certainly be positive, and Government Members will obviously want to highlight what they see as the Government’s achievements. However, we should not forget the mixed experience that many small businesses have had over the past few years. Many have survived, and are surviving now, only with great difficulty. According to the Forum of Private Business—we will all have received its briefing yesterday—94% of small businesses are reporting increases in cost pressures, and many small business proprietors have managed to survive only by cutting their own wages and those of their staff. Small businesses are not in any way exempt from the cost of living crisis that is affecting so many of our communities and constituents.

As I have said, however, I want to be positive and to focus on what can be done to strengthen and support small businesses, which I have discussed with representatives of various small businesses in my area. Several hon. Members have talked about the need for more sympathetic treatment by the banks. I do not have time to repeat the horror stories that we have all heard, but some of my constituents have reported awful experiences with RBS’s global restructuring group. I hope that the Minister will be able to update the House on what his Department is doing in response to the allegations about that organisation. Even if we leave aside some of the more dramatic examples, it is clear that businesses need more sympathetic treatment by banks. The banks should recognise the difficulties that have been caused by branch closures, and, of course, there needs to be more competition and choice in banking. Labour has made some important proposals in that context.

Other organisations, and indeed areas of government, can also provide funds and other support for small business, and Edinburgh city council has taken a number of important steps in that regard. It has provided the Creative Exchange, an incubator space that opened recently in Leith to provide affordable work space for up to 80 staff. A further example is the council’s procurement policy, which covers a £20 million information technology tender. The council wants at least 25% of the work to go to small businesses; the present contract is held by a single large company.

Small business lending is also important. I was pleased to learn about discussions between the council and Capital Credit Union about the possibility of the union contributing an extra £1.3 million to the East of Scotland Investment Fund, which could provide loans for small businesses. The credit union is able to do that because of changes to corporate lending rules that allow community-based mutuals to offer loans to businesses. As someone who has a very small investment in Capital Credit Union, I am glad that it is at the forefront of that project. It is important to point out that the European regional development fund is also providing support, given the rather negative comments about Europe that we hear from certain Members in the House.

[Mr Bain]

In Edinburgh, as in Glasgow, there are many small exporting companies. Does my hon. Friend agree that the Government should be doing much more to establish a more proactive relationship with such companies through UK Trade & Investment? I had to draw the attention of a company I visited recently to the services provided by UKTI. Would not such action by the Government benefit small exporters in Edinburgh as well as those in my constituency?

[Mark Lazarowicz]

It would obviously benefit businesses in constituencies throughout the United Kingdom.

Another initiative undertaken by the city council is the Edinburgh guarantee, which brings together local government, businesses, colleges, the voluntary sector and national programmes at Scottish, UK and European levels to create opportunities for our young people. Since its establishment just over two years ago, it has generated more than 1,000 job, apprenticeship and internship opportunities for school leavers. Many small businesses have been closely involved in the project, and I congratulate the council on what it has achieved.

However, if councils are to provide all the support for small businesses that they ought to be able to provide, they need to have the powers that would enable them to do that to the full. Local government powers in Scotland are obviously the responsibility of the Scottish rather than the United Kingdom Government, but the fact remains that local authorities can perform an important task in supporting small business. Those that are already doing a good job should be congratulated, while those that are not should learn from them.

Although I want to be positive, I should add that we must not ignore the real pressures on small businesses. Cost pressure is an important factor that needs to be addressed. During Energy and Climate Change questions, the Government once again refused to accept the merits of Labour’s proposal for an energy price freeze, which would be of real benefit to small businesses as well as householders. It is disappointing that the Government still refuse to accept the strength of our argument, but in a world of Government U-turns, who knows what their policy may be next week?