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Small Firms (Employment Subsidy)

Volume 957: debated on Thursday 9 November 1978

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As the House is aware, the Government have introduced during the last two or three years a range of measures for promoting employment and training which have had as their object a reduction in the high level of unemployment. In the current financial year, the expenditure on these measures is likely to be between £450 million and £500 million, and they are making a substantial contribution to bringing down the level of unemployment. Most of these measures run to 31st March 1979, and we are at present considering what needs to be done in the year which will commence on 1st April 1979. Meanwhile, we have decided to extend further from 1st January 1979 the scope of the small firms employment subsidy.

Under the scheme a subsidy of £20 a week for six months is paid for each additional full-time worker taken on in a manufacturing firm with fewer than 200 employees.

There has been an encouraging response to the present scheme, which was extended from the special development areas to the assisted areas generally and inner city partnership areas on 1st July 1978. Since 1st July, about 5,000 firms have applied to join, and we would have expected some 10,000 new jobs to be created in a full year.

From 1st January 1979, the present scheme will be extended to small manufacturing firms throughout Great Britain. Furthermore, the subsidy will be available to small non-manufacturing firms in the special development areas, development areas and inner city partnership areas. The new scheme will be open for applications to 31st March 1980. The changes have been notified to the EEC Commission. I estimate that these changes will more than treble the number of new jobs created by the scheme.

If the right hon. Gentleman can estimate the number of jobs that will be created by the scheme, can he give an estimate of the number of jobs that will be lost as a result of the increase in the minimum lending rate to 12½ per cent.? Is the right hon. Gentleman aware that we are becoming a subsidised society, constantly propping up small firms by subsidies? If he made sensible changes to the Employment Protection Act, he could get the employment without any additional subsidies.

Is the Secretary of State aware that in so far as we believe that these schemes have any part to play in solving our unemployment problem—and we believe it is a small part—we are glad that the scheme has been extended to the country as a whole, which seems sensible? Generally speaking, we believe that the Government show an incompetence in the running of the economy which is matched only by the kind of scheme produced today.

That is not the warmest welcome I have heard the hon. Gentleman give to a measure designed to assist in solving the unemployment problem.

We can measure our ability to estimate the effect of this extension, compared with the effect of MLR, because we ran a pilot scheme in special development areas prior to July, which I understood had the approval of the House. I acknowledge that it will play only a small part, but it is only one of a great many measures which, added together, are having a considerable impact on levels of employment. As to our being a country which is dependent upon the help of subsidies, I would have thought that the benefit that we are reaping—with more people being employed as a result of those subsidies—would be welcomed in all parts of the House.

Does my right hon. Friend accept that despite the rather grumpy remarks from the Opposition Front Bench there will be a warm welcome in special development areas for the extension to the non-manufacturing sector, which has been the Cinderella in the past? I hope that it will set a trend of more assistance in the form of grants for the service industries, which are important in areas such as Scotland.

I welcome my hon. Friend's comments. We have received an increasing number of representations of the view that to pay a subsidy to small manufacturing firms but to deny it to firms servicing those manufacturing firms is not the best way to aid the development of small firms in the special development areas.

I give a warm welcome to the Minister's statement. Does he accept that perhaps all the jobs being subsidised under the scheme are jobs which would have occurred anyway, without the subsidy—not all of them but some of them—and therefore that it is not strictly true to say that every job being subsidised is a job created as a consequence of the scheme?

Does the Minister also accept that while some of us do not accept that the Employment Protection Act has had the major effect on employment that the official Opposition Front Bench make out, we agree that there is a vast amount of form filling—particularly for the statistics office at Cardiff—which small companies are called upon to complete? Many of us who have to complete those forms take the view that they are an utter waste of time.

The problem of form filling by small firms runs much wider than the Employment Protection Act, as the hon. Gentleman appreciates. It is a matter to which the Government are giving attention.

I do not claim that every subsidy paid under the small firms employment subsidy scheme represents an additional job but when, as an experiment, we ran a small firms employment subsidy in special development areas for manufacturing firms employing fewer than 50 people, and compared what was happening in those areas with others as comparable as it was possible to find, we found that 40 per cent. more jobs came about in the small manufacturing firms in the areas in receipt of the subsidy.

Is my right hon. Friend aware that he should not be discouraged by the nit-picking attitude of the right hon. Member for Lowestoft (Mr. Prior), because if this country had adopted his policies another 1 million could have been added to the unemployed? The important thing for my right hon. Friend to understand is that what will help to make his proposals a real success will be his ensuring that local organisations such as employers' organisations and trades councils are brought into a full understanding of, and discussion on, how the scheme should operate. It is at this level that its success can be assured.

I agree with my hon. Friend that an understanding of this and many other employment schemes by local organisations is essential to the success of the schemes. Having introduced so many schemes during the past few years, I find that it is often six or 12 months before their availability is realised by the people whom they are intended to assist.

Does the Secretary of State accept that by extending this scheme throughout Great Britain, he is eroding regional policy by failing to give the development areas special incentives? Will he qualify further the example of non-manufacturing firms? Will that description apply to agricultural partnerships, to professional offices and to retailing?

To take the last point first, certainly "non-manufacturing" for this purpose covers agriculture as it covers the construction industry. These are both areas in which there are many small firms. That is why I expect that in areas where this wider definition will be used it will have a much wider impact. But, by the same test, I do not consider the hon. Member to be justified in saying that it will put these areas at a disadvantage, because it is in special development areas, development areas, and inner city partnership areas that the scheme will apply to non-manufacturing firms, not to the remainder of the country.

Is my right hon. Friend aware that any help to non-manufacturing firms is particularly welcome? Has he noticed that small firms, officially, have strongly opposed the devolution proposals? Can he say what good small firms can expect from an Assembly in Edinburgh?

I bow to the views of my hon. Friend, who has posed the question of the particular merits or demerits of devolution as applied to small firms. All I can say is that when considering Wales and Scotland for the application of the small firm employment subsidy, I took the view that development and special development areas in both countries should have maximum benefit from the scheme.

Is the Secretary of State aware that a survey published recently by his Department showed that 24 per cent. of small firms would have taken on more employees had it not been for the employment protection legislation? Is he aware that this indicates that about 300,000 jobs have been lost as a result, and can he indicate whether the subsidy announced today will create more or fewer jobs than that number?

I am not aware that the survey undertaken by my Department indicates anything like what the hon. Gentleman suggests. I have read that report, as I have read the wider survey. Certainly the scheme that I have announced today is of the order that I have indicated. If the hon. Gentleman and other hon. Members go around the country suggesting to small employers that they should not take on additional labour because we are operating a measure that protects employees in all firms equally, whether they be the employees of large or small firms, they will do considerable damage to employment prospects.

Is my right hon. Friend aware that his proposal will be much welcomed on Merseyside, particularly in the construction industry? It is bound to help construction workers considerably. Will he emphasise the point that it maintains regional policy, contrary to what was said by the hon. Member for Aberdeenshire, East (Mr. Henderson)?

Certainly it gives preference to the development areas and special development areas of the regions. That is not to say, if we find that this extension to services is a particularly good way of increasing employment, that we shall not have to consider a wider application of our proposal. I agree with my hon. Friend that its application to the construction industry will be most helpful, and I hope that, particularly on Merseyside, not only will it result in additional people being employed in an industry in which there is terribly high unemployment, but that some firms will expand sooner than they would have done otherwise.

On a point of order, Mr. Speaker. Is it in order for a Back Bencher to pass to a Minister a copy of the circular—produced by his own Department—the existence of which he has just denied?

I welcome measures which will create new jobs, and I should like to ask the Minister whether he will examine previous measures which were introduced relating to the construction and engineering industries training boards, the only result of which was that those boards locked up tens of millions of pounds in cash which is not being used to create jobs. Indeed, in the case of one training board, the return on its investments is now more than £1 million a year. Surely, that is not the way the Secretary of State would want to create jobs.

Certainly I do not imagine that industrial training boards locking up money is a way of creating jobs. In my view, the overall effect of our support for industrial training boards, particularly in the engineering industry, which the hon. Gentleman mentioned, has been to sustain and increase the intake of apprentices since 1974—something which, as far as I know, has never previously happened in a recession.

Order. I propose to call those Members who have been rising to their feet, but I hope that they will co-operate by asking brief questions.

May I come back to the question of the circular which was put out by the Secretary of State's Department? Is it not quite wrong for a Minister to deny a piece of paper which has come from his Department, and which clearly states that according to the Gallup poll that his Department carried out 24 per cent. of employers would have taken on more labour had it not been for the Employment Protection Act? It deliberately hits at the rights of Back Benchers for a Minister deliberately to deny the existence of a piece of paper that has originated from his Department.

I do not deny the existence of the piece of paper. I do not deny what employers say. They say many things, particularly when they are urged to participate in a campaign against the Employment Protection Act. But if the official Opposition believe that it is better to do away with the Employment Protection Act than to assist small firms in employing people, I profoundly disagree.

Will my right hon. Friend ensure that this new scheme, like the last, enables the Conservative Central Office to take part in it? Is he aware that the Conservative Central Office had £11,000 from the job creation scheme in 1978 to employ six people to go round Kensington and Chelsea counting the shop windows? May we have a guarantee that, despite its objection in principle, Conservative Central Office will take the money if it has half a chance?

It is certainly true that the Conservative Central Office put up a proposal for a job creation programme which was approved by the MSC, but I do not believe that at the moment it qualifies as a small firm. I hope that that situation will soon arise.

What estimate has the Secretary of State made of the number of jobs that might be forthcoming in the small business sector if small businesses in this country operated against a background rather closer, in terms of taxation and industrial relations, to that enjoyed in Germany and France?

In Germany there is a higher proportion of total employment in small firms than in this country. I do not know that that is entirely due to the practice that the hon. Gentleman mentioned, but I think that it is a reason why he should join with me in seeking to ensure that this scheme succeeds in building up the size of our small firms.

Is my right hon. Friend aware that neither Germany nor France has constructive measures such as that which he has just announced? Will he make it clear to the Commissioners when he is talking to them that we shall not accept Commissioner Vouel taking a negative view of the only methods that have been suggested anywhere in the Community which will help to create new jobs?

I shall certainly make clear to Commissioner Vouel the extent to which such measures have been successful in creating jobs. Whether I shall succeed in convincing him that all the measures we have run should be allowed to continue remains to be seen.

If the Secretary of State does not agree with the survey published by his Department, will he publish separately his own opinion of the effect on small firms' employment of the Employment Protection Act?

I certainly agree that my Department should publish the results of this survey. I was able to provide the House only with a survey which covered larger firms. When we first discussed the effect of the Employment Protection Act I could not provide a survey. I have taken steps to ensure that such a survey can be provided for the House. It is published and is available. I issued it in the hope that among those who would read it would be hon. Members with an interest in the issue, and I am glad to see that some hon. Gentlemen have already done so.

I do not suggest that one should take every answer provided by an employer to questions put in that survey as representing a basis on which to calculate employment effects.

My right hon. Friend's announcement today will be welcomed by the small business men operating the inner city partnership areas in Birmingham and other cities. Will he undertake to do what he can to encourage those small groups of ethnic minority business men who are now trying to put small businesses together, particularly in the big cities, to take note of the measures announced today, and to do whatever he can to encourage them to augment their small businesses in this way?

I certainly appreciate that among those who are keenest to found small businesses in this country are some members of the ethnic minorities. I therefore hope that they, as everyone else who can benefit from this scheme, can be made aware of it as quickly as possible.

Does the Minister agree that if a company believes that it can make more profit and increase production by taking someone on, it does not need any spur so to do? Does he further agree that the small subsidy to encourage the company to do so is infinitesimal and will have no real effect upon the employment situation? Does it not, however, show, as the Minister said, the parlous condition to which our industry has descended under this Government?

I believe that in calculating whether it is right in certain circumstances to expand a small firm the management must take into account, among a range of other factors, the initial labour costs, including those incurred over the six-months period. This scheme gives the employer a considerable advantage in dealing with high initial labour costs when he seeks to increase the size of his small firm.

May I, too, express appreciation that the scheme is to be extended? What proportion of the subsidy has been directed towards the North-West region, and how many jobs have been created as a consequence?

Since 1st July, when the scheme was expanded to its present coverage, more than one-quarter of all the applications in Great Britain have come from firms in the North-West—a total of 1,442 of the 5,038 applications. About 6,000 jobs in the North-West are covered by the small firms employment subsidy.

Is it true that the increase in jobs created by this scheme will be dramatically and tragically offset by the redundancies that small businesses will experience in the next few days as a result of the dramatic increase in MLR? Is it not ironic that on the day that the right hon. Gentleman has announced measures to try to help small businesses and create jobs there has also been this panic measure by the Bank of England?

Will my right hon. Friend accept that the welcome from my hon. Friend the Member for Birmingham, Ladywood (Mr. Sever) is echoed by representatives of the inner city areas of London, where we have been pressing for some time that the opportunities for the expansion of small firms and worker co-operatives lie in the distributive and service sector? Will my right hon. Friend consider increasing the flexibility of the scheme, particularly in terms of the amount and period of the subsidy, for the special problems that these non-manufacturing firms meet in the inner city?

I gave careful consideration to the possibility of extending the period, rather than the scope, of the scheme, but I believe that it is better to apply the scheme to a wider range of firms over a six-month period in which they will face the heaviest initial costs of establishing additional jobs rather than to a smaller number of firms—which I am sure would not be the wish of my hon. Friend—and paying them for a longer period.

Is it not absolute bunk to talk of employment problems in areas such as Wandsworth when it is well known that there is a grave shortage of workers for the public transport services in London? Given that the country's main problems are overmanning and inefficient use of labour, does it really make sense to spend money on subsidising overmanning rather than on spending the money, if it is available, on genuine public sector work in the Health Service, defence, or on tax reductions to encourage investment?

There are not serious problems of overmanning in any of the firms that are likely to apply for the subsidy. If we have an overmanning problem. I cannot see that it is particularly located in small firms. As to the application of the scheme in certain inner city partnership areas, I have found that in very large cities one can have pockets of unemployment which represent as serious a social problem as exists on the wider scale in some of the development areas.

Will my right hon. Friend draw to the attention of his colleagues in the Cabinet the fact that they could reduce unemployment by at least 4,000 tomorrow if they had a fairer system of sharing out quango jobs—one man or woman, one quango?

What is the Secretary of State's estimate of the cost of the extension of this scheme? Is it not a fact that if one is anxious to try to increase the number of people in employment, far greater job security could be provided by applying that money to reducing national insurance contributions, as the companies that would take up the employment would be more able to justify their extra employment on commercial grounds?

The answer to the first of the hon. Gentleman's questions is also the answer to the other. The extension of the scheme from 1st January 1979 to 31st March 1980 will cost £130 million gross and about £36 million net. The net cost of continuing our present scheme from 1st July 1978 to 31st March 1979 is £6 million. Obviously, spreading those two sums across the total range of national insurance contributions would bring about a very small reduction in the contributions.