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Small Businesses

Volume 990: debated on Monday 4 August 1980

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8.46 am

I hope that my hon. Friend the Under-Secretary of State will not misunderstand me when I say that I do not regret having kept him up throughout the night. He is noted both for having a fertile mind and for being imaginative. I am sure that he has put his time to good use, and I look forward to hearing in due course the ideas that he will be presenting as a result of his arduous hours spent in the Chamber.

I have listened to various debates on industry and small businesses and heard contributions by college lecturers, lawyers, soldiers and officers of trade unions; but seldom have I heard a contribution by a real business man, and even more seldom have I heard a contribution by someone who could be described as a small business man.

I started in business in the mid-1960s. Although my business has grown and I can perhaps no longer be counted as a member of the small business ranks, none the less I retain sufficient contact with my old business and other business men to speak with some authority on the problems facing small businesses.

Since the mid-1960s the mass of regulations and red tape affecting industry has grown. Small businesses, because they are small, cannot afford to set up specific departments to deal with the legal problems caused by legislation or special departments to deal with the problems of finance. But increasingly the average business man is required by the mass of legislation that pours from this House and from the EEC to be an expert in a range of subjects not allied to his business, and to be an expert in fields not related to his particular work.

Let us recall how and where small businesses start and who small business men are. Traditionally, two or more skilled tradesmen—millers, grinders, capstan operators or setters—may decide to break away from their company and to have a go on their own. They used to start in old warehouses or dilapidated premises in the inner cities, or within their sheds or garages, but increasingly the planners and the bureaucrats have ensured that that is no longer possible. This natural nursery for small businesses no longer exists.

Small business men of the type that I have described have skills, and they are usually in their hands. They may be good millers, turners or grinders, but they are seldom personnel managers or company secretaries. They establish themselves by contacting companies that sub-contract work. They establish themselves by giving a faster, better or cheaper service, and their overheads are usually lower. They start because they want freedom, because they want to be their own boss, and because they want more money. They start because they want profit, and they are prepared to work and to have a go. They are prepared to take risks.

But increasingly many of those who should be starting small businesses have decided that the game is no longer worth the candle, and that the risks that they take are too great. It is worth remembering that simply because one sets up a limited liability company one is not necessarily excused from financial liabilities. Increasingly, when a small business is started, the banks and finance houses insist that personal guarantees are given, and not just from directors, but from directors' wives. Those personal guarantees relate not just to the company itself but to the director's home. Therefore, he becomes personally responsible.

That is the problem—that increasingly the profit and the incentive are not worth the risk. Small business traditionally provides many jobs. At present I think that the figure is in the region of 6 million. The part that small business could play in reducing the number of unemployed, particularly at this time, can scarcely be overstated. We want to see the creation of more businesses. They should be encouraged and should not be denied.

For example, local authorities should be less difficult and obstructive on matters relating to planning controls. They should be less obstructive on matters relating to building regulations. They should be more sympathetic and understanding to the problems experienced by a business, particularly in its early days. So frequently the planners seem to operate in some form of bureaucratic vacuum, seeing only paper problems and not understanding the real problems and difficulties with which the average small business man must cope.

Local government is not the only source of irritation to industry and business. Industry is in trouble; there can be no denying that. Basically, the reasons fall into two separate areas—the external reasons and the internal reasons. The external reasons are the world slump and the ever-increasing cost of oil. The fact is that the cost of oil has trebled in the past two years. It is appreciated that Governments of whatever colour can exercise very little control over oil prices or a world slump.

However, the internal problems are very different indeed, and I should like to turn to some of the difficulties that are experienced by small business men. For example, there are high interest rates. I should like to make it clear that industry does not borrow for fun. It borrows because it needs the money for investment, plant, machinery, new buildings, modifications to old equipment and, of course, for stock. Business has no alternative but to borrow, because so often it is simply impossible for it to generate sufficient funds from its own cash flow.

There is an argument—perhaps my hon. Friend will comment on it—that a differential interest rate should apply to business. I appreciate that such an arrangement would be difficult to police. None the less, that should not necessarily rule a differential rate out of court.

There is also the attitude of organised labour and the trade unions. There are the exorbitant wage demands that industry has so frequently had to suffer. There is overmanning, and the fact that management spends so much of its time working out agreements with its own shop floor. It spends more time doing that than on running the business, getting out and obtaining new orders or developing new products.

At this point I should like to quote from a letter from a constituent company, Sheet Metal Developments Limited, which wrote to me on 25 July. It says that it would like a few of the problems that Governments have created.
  • "1. The redundancy act with its lump sum payment, this has to be faced at a time when the company is already suffering from a low order book and finances stretched to the limit."
  • 2. The Health and Safety Act which has been, and is, very costly and time consuming.
  • 3. The Employment Protection Act. Small sub-contracting companies rarely have a forward order load of more than two months, and therefore must always tend to under employ.
  • 4. Local councils then proceed to squeeze the last remaining drop of blood with ever increasing and excessive rate valuations and demands.
  • 5. Cash flow is a major problem to small industry"—
  • and so on. I shall not weary the House at this time with the further points that are developed.

    It is worth while recalling the words of the right hon. Member for Huyton (Sir H. Wilson), when he said so eloquently that one man's wage increase was another man's job. I wonder how often that has to be repeated inside the House and outside before the message finally sinks in. Companies can no longer afford to pay more than they earn, and if high wages are to be paid they must be reflected by a high level of productivity in a particular factory or plant.

    Much of the youth unemployment that exists at present could be taken up were trade unions to recognise that those young People who are being employed should receive a rate of remuneration that adequately reflects their lack of experience, knowledge and responsibility, for too often wage rates to young people are inflated as a direct result of union intervention.

    I believe that the Government have a part to play in the all-important question of youth unemployment. The Government should be looking very hard indeed at a form of differential national insurance contribution. Young people's contributions should be at a much lower rate than currently exists.

    If notice were taken of my two suggestions, I have no doubt at all that many of our young unemployed people would be finding jobs and obtaining useful work.

    I have already referred to what I describe as the tide of legislation—for example, the health and safety at work legislation. From the way things are going, I believe that we shall have the safest, the cleanest and the emptiest factories in the world. From my personal experience within the group of which I am a director, I know that the oncost to British industry of health and safety at work legislation must be about 15 per cent. I say that because frequently machines that my own group purchases from Europe and from the United States of America have to be fitted with additional guards. These are guards which the manufacturers think are unnecessary and which other operating companies in Europe and the United States equally find unnecessary. It is not just the expense of installing the guards. There is also the necessity of employing additional labour because of the inefficiencies which are generated by the guards. Here I should like to quote an example from our group. We have to stop certain print machines before we insert ink. We are the only country in the world which has legislation insisting upon that.

    There is also the lack of consistency that exists in the enforcement of health and safety at work legislation. The group of which I am a director examined a company with a view to purchase. The company is based in Kent. When we examined the factory we discovered that the legislation to which we were working in Durham did not apply to the company in Kent. It was operating without the necessities which the factory inspectorate had advised us that we should be introducing.

    I am not arguing for a return to nineteenth century laissez-faire England—far from it—but I am arguing a case for a return to common sense. We have job protection, redundancy payments and tribunals. The situation is such that many employers, even with the amendments that have been introduced by my right hon. and hon. Friends, will not employ additional labour. They recognise that if they win an order and it is lost or cancelled, for whatever reason, they will be unable to streamline the work force to reflect the new condition of the order book.

    I do not doubt the sincerity of those who introduced the legislation to which I have referred. However, what has happened in practice as distinct from theory is that too often job protection has in the long run become job restriction, or even job destruction.

    I appreciate that my right hon. Friends are controlling inflation. As I said in an intervention earlier in the debate, the Government believe that the control of inflation is a prerequisite for putting industry back on the right road. I am delighted to see that my right hon. Friends are producing an evident improvement in the inflation rate, and I look forward to quite a dramatic drop in the rate of inflation during the coming months. I shall be interested to hear the views of my hon. Friend when he replies.

    Business men do not require exhortations. They do not need to be reminded of the need for profit, for if an opportunity exists, the overwhelming majority of business men will seize it. What is now required is a far better understanding by the Government of how business and industry work. Senior members of the Government and the Civil Service should spend time not in the great companies, such as Marks and Spencer, but in the smaller companies, employing fewer than 100 people. They should be spending their time not in the great banking houses but in manufacturing industry. I am convinced that with the experience that they would gain they would have a far better grasp and understanding of the effects of some of the legislation that has poured through the House.

    There is not a great deal wrong with the man on the shop floor or with the average manager or director. However, there can be no doubt that the will to work and the will to take risks is being steadily eroded. My hon. Friend should address himself to that trend. Many of the policies of the present Administration are geared to that aim, but I am not yet convinced that they really understand well enough the burdens that have been created and are being carried by industry—burdens that are increasingly causing bankruptcies and are responsible for the present appalling rate of unemployment.

    9.3 am

    I am grateful to my hon. Friend the Member for Rugby (Mr. Pawsey) for introducing this subject. He has given me the opportunity to direct the attention of the House, especially my hon. Friend the Under-Secretary of State, to a disturbing situation in the area that I represent. As my hon. Friend knows—he has visited Northamptonshire—the county is substantially one of small businesses. We do not have the large employers that are to be found in other areas.

    The county has expanded considerably in the past few years, and an enormous number of young people are leaving schools. We calculate that about 35,000 new jobs will be required in the next five or six years. The problems at Corby mean that we shall need about 10,000 new jobs there. We face the daunting task of providing about 45,000 jobs.

    Since shortly before Christmas a most alarming number of firms have been going into liquidation or closing their branches. These have been mostly small firms. They include Ideal Clothiers Ltd. of Wellingborough, which has cut out 49 jobs: Wallis and Linnell Ltd., clothing manufacturers, which is shedding 250 jobs at Kettering, and completely closing down; Rushton and Sons Ltd., manufacturers of footwear components, which has shed 150 jobs in all; Leather Dressers, of Burton Latimer, which has contracted to the extent of 28 jobs; Adams Brothers Ltd. of Raunds, footwear manufacturers, which has shed 42 jobs; and Cox and Wright Ltd., of Rushden, shoe machinery engineers, which has shed 57 jobs. I could read out a list of firms, many of which would share the twin industries of clothing and footwear, and the associated trades. For a long time those industries have provided Northamptonshire's staple employment.

    The time has come for steps to be taken to instil, once more, a greater degree of confidence in the future. During the past month I called two meetings of those firms involved in the footwear and leather industries. The response of local industry was staggering. Virtually every local firm was represented. I gained the overall impression that the industry had begun to feel that the Government had forgotten it. The industry thinks that firms of that size are being placed on one side and occasionally sacrificed to those concerns that sell large amounts of heavy equipment overseas.

    My hon. Friend the Member for Rugby has amply illustrated the problems. However, many small firms find themselves in trouble for other reasons. In the past, many were urged to export. The reaction of a number of firms was highly commendable. In the past few months the export markets have dried up. Many now find that they must compete in a smaller home market and against very fierce overseas competition. If I were to add to my hon. Friend's list the problems besetting my part of the world I would have to add four more.

    First, there is an unfortunate degree of unfair competition from other EEC countries. There is no doubt that sections of the Italian industry do not have to cover the oncosts mentioned by my hon. Friend, such as those arising from health and safety at work measures and many other aspects of industrial activity. As a result, small firms in my constituency find it impossible to compete. They are therefore being undersold.

    Secondly, very unfair competition is being experienced from countries such as Brazil. During the past few months, Brazilian imports into Britain have risen by an alarming percentage. In the first five months of this year, they rose by 45 per cent.

    Thirdly, many local firms in my constituency have been affected by increased sales from Eastern Europe and the Communist countries. Imports from Czechoslovakia increased by 50 per cent. in the first five months. Imports from Poland have risen by 32 per cent. Both of those countries are substantial exporters to Britain.

    Fourthly, the export markets to which many of my local firms used to sell have closed down. Small firms are crucial to the survival of the county. Many towns and large villages in my constituency are virtually dependent on one trade. If those small firms—many of which employ between 50 and 200 people—are forced out of business the area will change from an area of average unemployment to one of very high unemployment. Indeed, it is not too wild to say that if the shoe and leather industry were to collapse parts of Northamptonshire would virtually become disaster areas.

    I do not suggest that the Government are solely responsible, or that they can supply all the answers. However, the Government should recognise that a crisis of confidence exists in Northamptonshire. They should take positive steps to help. My hon. Friend the Under-Secretary has already taken some steps in that direction. He has visited the county and has expressed an interest in my constituents and in those of neighbouring hon. Members. However, interest alone is not enough. I urge him to discuss with his colleagues constructive steps that will show clearly that the Government recognise the problems of small firms in my constituency and the rest of the county and intend to do something about them.

    One of the problems is the trade cycle. We are going through a deep trough. It will be some time before buying and restocking takes place. The all-party footwear group has had the advice of distributors and wholesalers. They are willing to prepare estimates of when they believe that the rebuying will take place. It is obvious that many of the firms that exist on the temporary employment subsidy will run out of subsidy before the market starts to upturn. I hope that the Minister will ensure that the subsidy is not arbitrarily cut off when industry is suffering severe damage and there is a risk of a sudden drop in employment. The subsidy should be extended for a few weeks at least until orders are coming in and confidence is returned.

    I hope that the Minister will encourage the steps being taken by the industry, the retailers and wholesalers, to mount a campaign in the autumn to sell British made products. Steps are being taken, but Government help and advice is needed. Small firms are unable on their own to mount the marketing exercise needed to be entirely successful.

    The Government must make at least one dramatic gesture to show that we shall not allow the products of British firms to be undersold deliberately by dumped clothing or footwear. The Minister should examine Brazil. There is no question but that Brazilian products are being brought into Britain at a very low price. We can take action against the Brazilian Government. It is not much good just warning them, as the Minister for Trade has done. Concrete action is required. If the Government took that action and moved along the lines which I have discussed, the small firms in my constituency and in the rest of the county will take heart, weather the next winter's storms and I shall not have to make such a speech this time next year.

    9.13 am

    As the hours have passed during the night I have been reminded of the tale of the hon. Member who, after an all-night sitting, dreamt that he was making a speech in the House and woke up to find that he was. That is not true of my hon. Friend the Member for Rugby (Mr. Pawsey), who I found at regular intervals during the night hovering round the Chamber, as was my hon. Friend the Member for Folkestone and Hythe (Sir A. Costain). An important contribution was made by my hon. Friend the Member for Wellingborough (Mr. Fry). I am disappointed that no Liberal Members are in the Chamber to listen to this important but short debate.

    It is right that my hon. Friend the Member for Rugby should draw attention to the importance of the role of small businesses. They are vital to the quality of life which we all tend to take for granted. The milk that is delivered first thing every morning, the newspaper that comes through the door, and other services that help to improve the quality of life and that are taken for granted are the result of a constant ant-heap of small business activity.

    More important to my hon. Friend the Member for Wellingborough is the fact that small businesses are the seed corn from which businesses of the future will grow and from which the jobs of the future will come. As some industries contract we have to ensure that we create the climate in which other industries will be born and will grow to take the place of those that are contracting. One of the values of the debate is that it has enabled me to listen to the views of my hon. Friends. I am conscious that it is important for Ministers to listen as well as to talk. Therefore, I do not intend to take long.

    The Minister referred to the need to listen as well as to talk. I am sure that he will be aware of the speeches made my by hon. Friend the Member for Bury and Radcliffe (Mr. White) and the hon. Member for Basildon (Mr. Proctor) yesterday on the problems of the larger paper industry and the small businesses in the paper and board industry.

    Will the Minister reply to the many points made by those hon. Members on behalf of the industries that they represent? Some of us have waited in the Chamber all night for a substantive Government statement on the industry. As it includes many smaller businesses, the Minister may wish to take the opportunity to reply to those points.

    The hon. Gentleman will also be aware of the considerable number of representations that have been made to him over the past few months by SOGAT, on behalf of the 3,500 workers in newsprint, as well as the 60,000 in the paper and board industry and the 140,000 in the converting industry. Representations have also been made by the Paper and Board Manufacturers Federation, which asked the Department a few weeks ago for undertakings on the question of energy prices.

    It has not been possible to bring a Minister from the Department of Energy to the House at this unholy hour, but perhaps the Under-Secretary will comment on the possibility of energy subsidies being introduced to protect the industry, particularly when it is clear that within six or eight months there could be as many as 7,000 to 10,000 workers in the paper industry losing their jobs and perhaps another 10,000 losing their jobs in the converting and sub-processing industry.

    I congratulate the hon. Member on having waited throughout the night and finding a way through the procedures of the House in order to raise the problems of the industry that he had hoped to be able to discuss in more detail on Second Reading.

    It would not be fair to my hon. Friends or to the House for me to seek to reply to a debate that has not taken place, even though the hon. Gentleman's intervention dealt with important matters. If the hon. Gentleman wished to centre his debate round energy and to ensure that he had an energy Minister to reply, he should have raised his topic on another part of the Bill. I cannot help the hon. Gentleman as he would wish, because I have to deal with the matter before the House, which is the problems of small businesses.

    I listened with respect to my hon. Friend the Member for Rugby who clearly spoke with experience as one who has run his own business. The House gains enormously from the advantage of hearing from those who have such experience. It is refreshing to see the emergence on this side of the House of a large number of hon. Members who have had practical experience of running a business—as you. Mr. Deputy Speaker, have had yourself—and who are now able to contribute to our debates.

    My hon. Friend described the start-up situation and drew attention to the need for people to have a balance of skills. Often, someone with a particular skill will start in engineering or structural work but will not possess the balance of skills necessary for a successful business. Those skills will include marketing, financial management, and such matters. That is one reason why, since assuming responsibility within the Department of Industry, I have extended the work of the small firms counselling service nationwide. We are able to bring experienced businessmen to give advice and provide a problem-solving service to those starting in business who run into difficulties. Those thinking of starting a business—if I am allowed to advertise—should pick up a telephone, dial 100, and ask for Freefone 2444. The ywill find themselves in contact with the small firms services of the Department of Industry and automatically able to get in touch with the counselling service.

    The counselling service extends across the whole country. In addition, in the rural areas there are available the services of COSIRA, the Council for Small Industries in Rural Areas, which provides an even more intensive service of consultancy and assistance with raising finance that is important to small firms.

    My hon. Friend talked about the reward-risk ratio, and said that it was not worth while for people to start businesses. That has been the situation. I would, however, ask my hon. Friend to take on board the substantial changes that have been brought about by the Government. My right hon. and learned Friend the Chancellor of the Exchequer, in his first Budget, made the largest-ever reductions in tax at the top end. The man who now makes a success of his business has a substantial benefit in cash terms—more than doubled, from 17p to 40p in the pound in his take-home pay. This tips the risk-reward ration in the right direction as far as rewards are concerned.

    My hon. Friend also referred to the compliance costs. It is true that the smaller the business the greater becomes the burden of complying with the requirements of Government control and regulations. The smaller the business the higher up the management pyramid one goes. No one in a large business can imagine how a managing director's time is taken up filling up forms. There are staff in the large business to carry out such tasks. In the small business, it is the managing director's time, in driving the business forward, that is at such a premium but that is lost in complying with the requirements of regulation and control.

    My hon. Friend drew attention to the difficulty of planning in start-up situations. He can take some comfort from the fact that a circular on development control will be issued before the House reassembles following the recess. This will help small firms to start up where their activities are not damaging to the neighbours and inimical to the general planning strategy for the area.

    I cannot pick up all the points from the letter to which my hon. Friend referred, but it drew attention to the way in which the Employment Protection Act has acted as a barrier to job creation. We have made a change here of substantial importance. Any small business with 20 or fewer employees will have a two-year qualifying period before the unfair dismissal provisions of the Employment Protection Act start to bite. That aligns it with the two-year qualifying period for redundancy payments. So my hon. Friend can say to his small business constituent "Do not worry about this area of that legislation. You have two years clear run before you need concern yourself with that problem."

    My hon. Friend drew attention to the Health and Safety Executive's rigid requirement for guards on machinery in excess of that recommended by the manufacturers and that used throughout Europe and America. None of us wants to see a lowering of standards which risks people's lives or limbs, but if standards are being asked for here which slow up production and are contrary to the standards required elsewhere for the same machinery, I should like to know about it. I should be grateful if my hon. Friend would send me full details of these and any similar burdens placed upon the cost of production.

    However, on my hon. Friend's reference to a lack of consistency between one part of the country and another, there is a genuine problem. If we are to allow flexibility, we will not necessarily get consistency. Rigidity will bring consistency, but flexibility means different interpretations by different inspectors. That is the price of flexibility.

    My hon. Friend talked about the need for cash in a business. This is absolutely essential. He asked for differential interest rates. I am afraid that I have to disappoint him. The problem is twofold—first, to the extent that one has lower rates for one group in the community, to achieve the same average level of interest rates, there have to be higher ones for the rest of the community. Worse than that, the really enterprising small business man—I do not blame him, because he is an enterprising fellow—will simply take the money at the lower rate and pop down the road as fast as he can and on-lend it at the higher rate. There are practical problems, therefore.

    My hon. Friend the Member for Wellingborough stressed the needs of his constituency, particularly in reference to the footwear industry. I am following with great concern the problems of this industry. If my hon. Friend, as chairman of the all-party committee on footwear, wishes to come with his colleagues to discuss these problems in greater depth than is possible today, I shall be happy to receive them.

    As for Poland and Czechoslovakia, we have had no increase in the voluntary restraint agreement over the past three years. That makes it very difficult for us now to ask for a reduction, when the general pattern and pressure everywhere outside this country is to increase the amounts allowed to be brought in.

    The problem of Brazil is a special one. I have seen the Brazilian chargé d'affaires with my hon. Friend the Minister for Trade, and made clear to him the problems that my hon. Friend drew to our attention. There is a serious problem—not because the overall level of Brazilian exports to this country is massive but because it is concentrated in certain narrow sectors of the trade and does immense damage as a result.

    On the problem of dumping, we have a special anti-dumping unit at the Department of Trade, which will certainly consider any properly investigated and documented evidence of dumping. I should be glad to hear from my hon. Friend on that.

    This debate has enabled hon. Members to make valuable contributions to the Department's and my own thinking in small business policy. I am grateful to my hon. Friends for having put some new items in my in-tray. During the early hours of the morning, at about 4 am, I managed to get my "in" tray somewhat more empty than it usually is. My hon. Friends have now filled it up again. I had better go on to deal with that. I thank them for having raised these matters this morning.