Skip to main content

Small Business

Volume 458: debated on Wednesday 28 March 2007

Motion made, and Question proposed, That the sitting be now adjourned.—[Kevin Brennan .]

It is good to have your direction, guidance and help, Mr. Caton—I shall certainly need it. I am pleased that this debate was called for this morning because Britain’s future competitiveness and the problems relating to ensuring that we are competitive over the next 40 years are vital to all of us. I want to take a positive approach, because I know that my children and grandchildren will be dependent on how successful we are in the task of remaining competitive over that time.

In a way, this is a continuation of last night’s Budget debate, in which I was fortunate enough to speak. I spoke on the importance of small business and on the harmful effects of the increase to 22 per cent. of corporation tax for small business, which was contained in this year’s Budget. I also discussed the inability of small business to claw back that money through investment and an increased research and development allowance. Those measures will impact on the retained profit of small business, which in most instances—not all, but most—is used to finance growth in the first 10 years of the life of a small business. I feel that anything that inhibits such growth is not in Britain’s interest. However, that debate is over and the Budget is settled for another year. We now need to move on to address Britain’s long-term economic future, the possible impact on that of small business and how it can contribute to well-being.

I have to declare an interest. As I said yesterday, I am a small business man. In fact, one only needs to look at me to know that that is not the truth; however, I have started two small businesses that have grown, and I am most thankful for that. As I mentioned last night, I started my first small business in 1989. It builds databases for business—mostly for the business-to-business publishing industry—and now employs140 people. That is a measure of what small business can do to contribute to the nation’s well-being and to add to the coffers of the Treasury, which is vital. I was then foolish and tried to set up another business in 1993 with a mad South African—everybody has to come across a mad South African in their lives. It was a small publishing company, and by dint of hard work, sizeable risks and sleepless nights we managed to build that company up to the point where it employs more than 80 people. The contribution of those two small businesses is that they now employ more than 220 people, which underlines again the import of the small business sector for providing future job growth.

Although I wish that I were unique, the truth is that I am not. There are thousands and thousands of others like me who have made similar efforts. They did so, of course, first and foremost in their own interests—I do not deny that that is a major motivating factor. However, as part of that process they have created jobs and wealth for the nation and taxation for the Exchequer. In the UK, small and medium-sized enterprises now account for more than half of the employment—58.7 per cent.—of the working population. That is pretty much true for each region of the country. There are 4.3 million small businesses, and I recognise that that number has grown, but much of that growth is down to people incorporating as one-man businesses. I recognise the need to ensure that that loophole is closed because, frankly, it does not help anyone, but I am saddened that the Chancellor used such a large, all-encompassing hammer that impacted so much on many small businesses to close that loophole. I appealed to Ministers yesterday evening to review that position—not for this Budget because it has been passed, but perhaps for next year. There is a need to free small business and encourage small business creation, while closing the loophole that the Secretary of State for Trade and Industry said was the main reason for the Chancellor increasing corporation tax.

Some 97 per cent. of firms in this country employ fewer than 20 people. That is quite startling. Indeed, 95 per cent. of firms employ fewer than five people. Small businesses are a major part of the economic fabric of this country.

I congratulate my hon. Friend on securing this important debate. Does he agree that nowhere in the country is it more important for small business to be successful than in Northamptonshire, because around 100,000 new jobs must be created in that county’s economy over the next 15 years if the hundreds of thousands of people who are coming to Northamptonshire to live are to have gainful employment? The small business sector will be crucial in that respect.

I thank my hon. Friend and neighbour in Northamptonshire for that question. I assure hon. Members that the question was not planted—although I wish that I had planted it because my colleague makes a very important point. The sustainable communities project in Northamptonshire will bring 300,000 additional people into the county and add 50 per cent. to our population, so the jobs that he refers to will be required. One of the reasons why I wanted to have a debate on small enterprise is that it is one of the sectors where those numbers of jobs could be created. I thank my hon. Friend for the point that he makes.

The truth is that more than 500,000 people start up their own businesses every year. That is another remarkable fact that smacks people in the face when they see it in print—indeed, it did so to me, as I did not think that the number would be that high. Again, that underlines the import of business creation. Some12 million people work in small firms in this country. Such firms contribute more than 50 per cent. of UK turnover, which is around £1,200 billion—wow! I see my own little contribution to VAT and so on, but it is only when one sees a figure of that size that one recognises the contribution that small business makes.

The final but equally startling fact is that 64 per cent. of commercial innovations come from small firms. That is a massive contribution in total and one that I am proud to be part of. The importance of SMEs is further underlined by the forecast that in a 10-year cycle that began some five years ago, although UK plc will shed 1.5 million jobs, SMEs in the UK will add 2 million jobs. I have said before that the sector is rather important to our well-being.

We need to enhance the role of small business if we are to face the challenge of the future. It is worth recording what that challenge is. We know that emerging nations are emerging ever more quickly; it is a trend for globalisation that is impacting massively upon our ability to compete in the world at large. Indeed, the challenge will become increasingly important over the next 40 years. For instance, Office for National Statistics figures show that the United Kingdom’s deficit in trading goods with China grew in 2005 to £10 billion. That shows how the emerging nations are competing. The size of the global economy is set to increase by 40 per cent. by 2015, and India and China together will represent a quarter of the world’s output.

I know from running a business that long-term planning can be a pretty dodgy exercise; it is as much perception, guesswork and hope as it is defying science. However, we have to take the best figures that we can to understand the size of the challenge that faces us. It is expected that India and China alone will be responsible for 60 per cent. of global trade by 2050—to say nothing of Brazil, Mexico or the other emerging nations that are growing and challenging our trading position. To ensure that our businesses remain competitive, we need to assist them to create more jobs, as that will contribute to our well-being and make a better contribution to our trading competitiveness.

I have already spoken about job growth in the sector, and I have already mentioned innovation. The Government need to encourage an entrepreneurial rebirth in the sector. I believe that the Government recognise that. I have no wish to be churlish about it; statements have been made and there is a real desire to encourage and enhance the sector. I welcome that, and I am delighted that the Minister is a part of that process. I have heard her speak to entrepreneurs, and I know that they accepted her message and were encouraged by it. However, we are not doing so well at the moment. I have already said that the Budget is putting an increasing burden on small business. Indeed, I believe that it will restrict growth, as growth is financed from retained profits in that sector—certainly for the first 10 years of the life of a business.

Government support for small business adds up to a staggering £12 billion per annum. Tragically, however, it is not well directed. I am delighted that the Government accepted the National Audit Office report of 2005. It seems to me that the Government have no wish to hide from the fact that we need to do better; indeed, they said so when the report was published. However, the report was scathing. For instance, it said that there were 3,000 different schemes to enhance and help to create small business. Those schemes were falling over one another to get the audience to the marketplace, but they were not very successful. I welcome the Government’s promise—it is work under way—to have a much smaller number. Whether 100 is the right number is irrelevant. We need the most effective number to do the job in hand. I do not hold the Government to such figures, but I do hold them to their promise to improve, so that we become much more effective in our support of small business.

We all know that regional development agencies are variable in their success rate and in the work that they undertake. It is equally true to say that the Government recognise that. There is much common ground. That excites me and leads me believe that there is hope for the future. However, the overall tenor of the NAO report suggested that the organisation of our support for small business was ineffective, inefficient and wasteful. I am delighted that the Government have seen fit to do something about it.

The NAO claimed that we need to address a number of factors. Small businesses need better regulation and better access to finance, not only when one-man businesses become employing businesses but, equally important, when owner-managed businesses become board-managed businesses. Indeed, at the time of that leap, businesses have a massive problem with equity. Finding capital to finance change between £250,000 and £3 million is massively difficult.

The NAO says that we need more effective business support and less Government bureaucracy, and I agree. We need clear communication and information from the Government. Of course, we need a favourable tax regime, and I shall say more about that later. Above all, we need a skilled work force. Those are the areas that the NAO said needed attention, and it is generally accepted that it is so.

I turn to education and skills. The Leitch report said that one in six adults in the UK does not have the literacy skills expected of an 11-year-old. An Institute of Directors policy paper stated that only 14 per cent. of British employees have intermediate level vocational qualifications, compared with 46 per cent. in Germany. The British Chambers of Commerce says that the UK faces a skills crisis.

The Foster report said that 17 bodies have monitory or regulatory roles in further education, yet less than half the budget allocated by local skills councils goes to further education and 60 per cent. of it is spent on remedial training at level 1, leaving hardly any money to be spent on intermediate skills. We need to change that so badly it almost hurts. It certainly hurts our business success and our ability to compete.

The Ofsted report of 2005 is, I am sure, well known to the Minister, so I shall not go into detail. However, it said that the lack of skilled teachers

“is exacerbated by short-term and uncertain funding arrangements”

that hamper long-term planning. We are not well equipped to support business. We have a problem. We also have a social wage and regulatory burden that needs to be understood, and we need to do something about it.

I agree very much with the thrust of the hon. Gentleman’s argument, and I want to extend the discussion on how to build our skills base. It is a problem for small business in particular, because allowing employees time off to build on their skills can sometimes prove difficult if there are only four, five or six employees. How should small business be working with Government and educational institutions to overcome some of those real difficulties?

I thank the hon. Gentleman for raising a genuine—I know that we always use that word in response to interventions—and important point. I promise that I will speak later about what we might do collectively, as we are all in this together. Part of our task in this place is to ensure that people can create businesses not only to keep us going but to keep going all those services that live off the wealth-producing sector. I will revert to the subject later if the hon. Gentleman is content for me to do that.

We keep adding to the social wage, and although this is not the right debate in which to go into the areas of employment law, maternity rights and so forth, I want to mark that up as a factor of which we should be aware. The more we impose on small businesses by way of social wage element, the less easy it is for small businesses in particular to compete. That is not to say that we want to return to the 1890s, when workers’ rights were largely not what they should be—we would all be fighting for better workers’ rights in those circumstances. We need a balanced perspective, however, and we need to ensure that the social wage element burden on small business is in keeping with our ability to compete, by recognising global standards and taking them into account when framing regulation.

The burdens barometer of the British Chambers of Commerce shows that the cost of regulation and red tape for British business increased by £55.6 billion in the period from 1998 to 2006. More important, the Association of Chartered Certified Accountants has observed that the cost of complying with red tape can be proportionately 30 times higher for SMEs than for larger firms. That is a massive figure, which we all need to take into account.

Let me mention the national minimum wage, which is indeed a burden on business. Although I do not argue against it, I am against the rate of increase. An increase of 34.7 per cent. in the past five years has created problems—it is at least three times the rate of inflation. So I hope that the Government now feel that they have achieved their objective and can settle on increases that are related to inflation. That would be a great relief, particularly for small businesses. Those businesses want to employ people and to grow, but they dare not always take the risk, because of the responsibilities that are placed on them by employing people.

What else can we do collectively to ensure that our business sector works well and meets the challenges of the future? There are some big issues, and I shall try briefly to address them. The country’s national insurance system is badly in need of wholesale reform, and I believe that we should set about that reform—I was hoping that more would be done in the Budget. The present system costs businesses £760 million per annum—a figure that rises to £2 billion if all Government payroll demands are taken into account. Perversely, that has a considerably greater relative impact on small businesses than on plcs, and we need to consider that fact.

Regulation should be reduced. There was a period when the European Union felt that its only role was to increase regulation on businesses throughout Europe—as though that had no impact on the continent’s ability to compete in a globalised trading system. The cost of regulation to British business should also be reduced, because that too has dramatically increased. I recognise that the increase is not necessarily attributable to the present Government; much of it derives from Europe. However, we need to get a grip on it. I hate to say it, but if that means throwing some regulation back to Europe, let us have the courage to stand up and do that. Somebody needs to do it; somebody needs to stand up to the regulatory burden and say, “We as Europeans can’t accept it. Our future as Europeans is bound up with the size, rate and burden of inflation emanating from the EU.”

There is one area for which this country is responsible, however: gold-plating. The Foreign Policy Centre found, I believe, that 62.5 per cent. of the EU regulations that they reviewed had been gold-plated. Do we really need to add to the burden on business by imposing yet more regulation at our end? My belief is that we do not.

To get rid of the burden of regulation, or at least to increase awareness of its dangers, we should create a network of enterprise champions throughout the civil service. That is not a new concept; champions exist in many different areas of Government. There should be enterprise champions who are committed to the mantra that regulation costs money and reduces our ability to compete in the world.

The Public Accounts Committee has observed that there are no official statistics on the national cost of regulation on small businesses, although it acknowledged, as do I, that the Government have recently embarked on a costing exercise in that respect. That is a move forward and I welcome it.

I have already said that red tape has a heavier relative impact on small businesses, and I have referred to the need for better skills. I have a whole list of such skills. We need to ensure that skills packages derive from the shop floor and are not imposed downwards by the educational establishment. We need to reach out to businesses with skills and involve them in creating skills packages, and we need to take skills packages to the workplace. The hon. Member for Edmonton (Mr. Love) is right that a sizeable number of small businesses are not being reached because they are expected to seek assistance at a higher level than often is known to them. There should be much more involvement in reaching out to them with training packages that are created by business, as well as by educationists.

My own local learning and skills council has17 members, of whom only four are businessmen. I am not saying that that is the Government’s fault; business has a responsibility to help to work in partnership with the Government at all levels to ensure that skills training is much more effective. However, I want to see a change from control by educationists to a situation in which there is much more business input, and I want that to work on the shop floor, in factory sites, in offices and on the ground in business generally. Will that be expensive? Yes, it might be more expensive than at present, but an awful lot of waste in supporting business has been observed. That could be directed to the training activities that I want to happen, and I hope that that gives one possible answer to the point raised by the hon. Member for Edmonton.

I have already commented on how poorly equipped this country is in skills and vocational training, and we need better.

On vocational training, does my hon. Friend think that it might be a good idea for the Government, or any incoming Government, to consider how young people of 14 are streamed? Many such young people do not necessarily want to be learning French or academic subjects. They are turned off by school, but they would appreciate the chance of a vocational education that would begin to train them for work. That is done in Germany, where there are academic and vocational routes at 14.

Order. The hon. Gentleman is taking rather a long time for an intervention. I think that the hon. Member for Northampton, South (Mr. Binley) probably has the idea.

Thank you, Mr. Caton. I accept the point that my hon. Friend was making—it is an important one. The national target for 50 per cent. of the school population to go to university is not the most helpful target—I am sure of that. I would rather not have a specific target; I would rather enhance vocational skills, apprenticeships and school training for the world of work in a way that might obviate the need for such a 50 per cent. target. That is possible, provided that vocational attainments are worth while, important to the student and important to the world of work.

May I say how much I agree with the hon. Gentleman’s view that education or skills training should be a bottom-up process, rather than a top-down one, but is not the problem with comparing us with Germany that there is no parity of esteem in this country between the academic and the vocational? Until we create such a culture, separating people out will not work.

I thank the hon. Gentleman. He always speaks words of wisdom. I said yesterday that I had once had the privilege of going to Sri Lanka with him, and I had a very enjoyable week. I recognise what a wise and credible man he is and I am delighted to pay him that tribute. Of course, I agree with him. We must make the world of work a heroic place to be. We make heroes of pop stars and football players, but we look down on entrepreneurs in some respects. They are viewed with distaste, either as anoraks or as petty crooks trying to screw the whole world for their own ends, and of course, we know that neither view is accurate.

We must build up the esteem in which we hold entrepreneurs, who go out and create business. We must build up a view that good management is a good profession to be part of, and we must create the view that profit is an honourable thing to attain, because it is about growing jobs and businesses. I therefore accept totally what the hon. Member for Edmonton says and thank him for making the point.

Let me bring my speech to an end—you will be delighted, Mr. Caton, I am sure. I repeat that we face a massive challenge; we face a challenge particularly from emerging nations. I have spoken about the need to reduce the burden on our business, which includes regulation. Above all, we need to work together, because that is in all our interests. We share a common interest, as I am sure the Minister recognises. The reason why I wanted to have the debate was to establish that fact if we established nothing else. Unless we do our job now, we will fail our children and grandchildren, and in 40 years’ time, it will be much more difficult to compete, and it will be a very difficult world to live in if we are unable to compete on favourable terms.

Before I call the next speaker, I advise hon. Members that I intend the winding-up speeches to start at 10.30 am, and I have a list of several possible speakers. I call Mr. Andrew Smith.

I am sure that it will be the common currency of the debate to speak of the enormous contribution that small businesses and all who work in them make to our economy. That contribution comes in job generation, local services and innovation and creativity, and in how small businesses help to shape the fabric of our local communities, both physically and socially.

I congratulate the hon. Member for Northampton, South (Mr. Binley) on securing the debate and on the very positive spirit in which he advanced his analysis. We have had a double benefit: we have listened to him speak from his personal experience and insight twice in the past 12 hours. I can prove that I was listening last night: the hon. Gentleman gave us three very wise precepts for small business success, and they stuck in my mind, although he did not repeat them this morning. He told us that, first, volume is not everything; it is what someone is making out of the volume that is important. Secondly, cash flow is king. Thirdly, what really matters is not investment in plant, but investment in people. The hon. Gentleman might like to turn those three small business precepts into a small booklet to advise people—it was good stuff.

I take the debate as a welcome opportunity to praise the work of small businesses, especially in my own Oxford constituency, and the work put in by area and sectoral local business associations, the chamber of commerce and the Federation of Small Businesses. The hon. Gentleman was right when he said that small business needs to be exercising more purchase on the education and training system. It can do that only through business people giving up their time—time that they have to spare from the very demanding task of running their businesses—so we all owe them a debt of gratitude. The contribution that those people make benefits our communities, as well as the economy. Certainly, I find the comments and advice that they give to me locally invaluable.

We had a good example recently in the excellent conference put on by the Oxfordshire branch of the FSB. That conference centred on very interesting research that it had commissioned and a resulting report—I have it with me—that I think is of broader interest and would certainly be well worth replicating in other areas. It sought to take the sort of evidence-based approach that is applied in the well-known FSB “Lifting the Barriers” survey, but to do so on a local basis so as to analyse the impact of small businesses in the local community, thereby giving a picture that, by its nature, cannot be fully picked up in the national surveys.

Entitled “The Economic Ecology of Small Businesses in Oxfordshire”, the report was based on a representative sample survey of the 25,000 small businesses in the county produced by the Oxfordshire Economic Observatory, based in the Oxford Institute for Sustainable Development at Oxford Brookes university. The study produced a wealth of information, but I shall mention just a few highlights this morning. It underlined what the hon. Member for Northampton, South was speaking about: the crucial importance of the small business sector. In Oxfordshire, it accounts for 57 per cent. of the county’s private sector employment. Business growth has been relatively strong in recent years, as we might expect in a generally prosperous county in a generally prosperous region. The number of VAT-registered businesses increased by 9.4 per cent. in the five years to 2006, compared with 6.1 per cent. in the south-east and 6 per cent. in England as a whole.

With regard to size and type, 85 per cent. are micro-businesses, employing fewer than 10 staff; 21 per cent. have no employees at all; 65 per cent. are family owned; 35 per cent. are home-based; and 17 per cent. are female-led. Most small businesses were in services, with wholesale, retail, estate agency and other business activities accounting for about 45 per cent. of the total, but there was a very important, albeit minority, share of small manufacturing businesses as well.

With regard to the overall challenges and obstacles to business, regulation or red tape and taxation issues predictably topped the list. They were regarded as a major problem by 33 per cent. and 26 per cent. of respondents respectively. On more local issues, 13 per cent. identified housing supply and 10 per cent. transport infrastructure as the major problems. Nearly one third said that they experienced skill shortages when recruiting new staff, thus reinforcing points that have already been raised, and 16 per cent. identified planning restrictions as a major problem as well.

The recent survey showed significant optimism about business growth in the next few years, with 75 per cent. expecting to grow their business through a mix of existing activities, new products and services, and new markets. What the survey particularly brings out is what the report calls the small business economic eco-system—drawing an analogy with biology and the importance of micro-organisms in ecological systems. It analysed interaction with other local businesses, so it found, for example, that 50 per cent. of the businesses derive more than 50 per cent. of their annual turnover from local sales and that just over one third place half their expenditure with local suppliers. That is a vital reinforcement of the strength of the local economy. Most of the businesses made good use of local shops, local banking and local post offices, thereby helping to sustain those services for the wider community.

The study also shows the wider value of small business interaction with the local community. That involves things that all too often are taken for granted—for example, the extent of work experience opportunities for young people that are provided by many small businesses and the involvement with schools, charities and sponsorship of various kinds.

In this age of ever more commuting, with all the congestion and environmental costs that that imposes, it is particularly notable that small businesses also provide predominantly local employment, with 75 per cent. reporting that at least half their staff live within five miles of their business premises.

The survey reveals growing environmental awareness and attention to waste recycling, as well as the importance of reducing water and energy consumption. At the same time, however, it reveals concerns about the lack of information on environmentally beneficial options, the lack of time to weigh options up and fears that they might not be cost-effective or necessarily enhance business prospects.

There is a clear case for better promotion of environmental support and advice services locally. In Oxfordshire, we have the Oxford Brookes Environmental Information Exchange and the Oxfordshire Sustainable Business Partnership, but we also have national support and advice from bodies such as the Carbon Trust. At the conference that launched the report, the trust came in for particular praise from a local manufacturer that had used its advice service.

I therefore ask my good friend the Minister to look closely with our colleagues in the Department for Environment, Food and Rural Affairs at what more can be done to ensure that small businesses can readily access information, advice, support and, where appropriate, incentives to enable them to play their part in reducing waste and emissions and in combating climate change.

I commend this path-breaking Oxfordshire report as a whole to the Government and urge that similar studies would deepen understanding of the contribution and needs of small businesses in other parts of the country. If we are to sustain the impressive growth record and employment generation that the stable economy and other Government policies have helped to bring about over the past decade, we need to make even more of the entrepreneurial flair, hard work, innovation and local commitment that we are fortunate to have from the small businesses in all our communities.

I want to make a modest contribution to the debate. This is an important subject, and I congratulate my hon. Friend the Member for Northampton, South (Mr. Binley) on raising it. I follow him this morning, as I did yesterday evening in the Budget debate, and it is a great pleasure to do so, given his expertise on this issue.

In the Budget debate yesterday, many of my remarks focused on the importance of business—particularly small business—to the economy. I highlighted some of the measures in the Budget that will make life more difficult for entrepreneurs at the smaller business end and I shall not take up the Chamber’s time by repeating what I said then. Today, I shall focus on the two issues in respect of which we need to look most carefully at the Government’s role.

As my hon. Friend the Member for Northampton, South told us, the small business sector is the critical engine of growth for the economy, employing more than half the people in the country. In rural areas such as mine, small businesses essentially represent the whole economy; indeed, the largest employer in my constituency, which happens to be an international conglomerate, employs 400 people, but the vast majority of businesses employ fewer than 100, with most employing fewer than 25, and they are typically owner managed. Without the entrepreneurial flair of individuals who set up businesses in rural areas, there would be no employment, so the sector is vital for rural communities in particular.

Those who set up businesses are, by definition, entrepreneurs and risk takers. We have heard of my hon. Friend’s personal experience, and I echo his point that many Opposition Members have gone through such experiences. I do not wish to blow my own trumpet or to get into a competition with my hon. Friend, but I also set up a business from scratch, and it ended up employing slightly more people than his did; indeed, by the time I exited it last year, we had more than 2,500 employees. My point is that most people who go into business recognise that they need to take risks. To get their businesses off the ground, many people make significant personal sacrifices that affect their lifestyle, and there are many different reasons for doing that. However, such individuals are used to taking risks, and one of my concerns about the Government’s approach to business policy is that they often seek to restrict individuals’ ability to take risks. They seem obsessed with the idea not just that they know best, but that businesses cannot be left alone to get on with doing their job and need to be micro-managed in many different ways. I hope to be able to illustrate that in a couple of moments in the brief time that I have.

We hear from all the surveys, and we have heard it again in this debate, that business men’s two primary concerns about their relationship with the Government relate to tax and excessive regulation, and I shall focus mainly on those two issues. Many businesses, particularly under this Government, start paying tax before they start trading. I am thinking particularly of measures in the Chancellor’s 2004 Budget to reform the stamp duty land tax regime for businesses that open new premises and take on long leases. Such businesses must now pay a substantial amount, which is calculated on the duration of the lease, rather than on the first-year element, as was the case previously. That acts as a genuine barrier to business inception.

My business was in the retail sector, and the Chancellor’s measure could affect any retailer, because retail premises were typically let on 15-year leases. For a business that is starting from scratch, which does not know whether it will succeed, to be faced with a bill not of a few hundred or a few thousand pounds but, as in one case with which I am familiar, of £15,000 before it has opened its doors for trading and knows whether it will succeed, the Chancellor’s measure is a significant barrier to business inception and entrepreneurial risk taking. Of course, that applies not only to retail premises but to all premises, which are typically let on relatively long leases. I accept that the relevant period is coming down, partly as a result of the Chancellor’s measure, and that raises separate issues for business investors in property.

Of course, business fulfils a useful function not only as an employer but as a revenue raiser for the Government. The complaint that I frequently hear when I talk to business groups around the country is that entrepreneurs regard themselves as acting primarily in the Government’s interests as their tax collector. The degree to which new regulations and new taxes impose an obligation on companies to spend much of their time collecting tax in one form or another seems to increase from Budget to Budget. Clearly, pay-as-you-earn is a significant and efficient form of tax raising, and other obvious examples include national insurance, VAT, business rates and stamp duty land tax. However, there is a host of other measures, such as aggregates tax, which was increased in the most recent Budget, and the tax-collection duty that they impose is an administrative and revenue-raising burden on individual companies.

As regards the most recent Budget, we are of course focused on the increase in corporation tax on small business. That increase sends small business a serious signal that the Government are not particularly interested in it, and I hope that the Minister will pick that up when she winds up. The attempt to characterise the changed capital allowance arrangements as in some way offsetting that increase is a bit of a joke for small business. It might apply to a small number of sectors whose level of investment in capital will allow them to benefit from the changes, but in most cases, small businesses will be disproportionately affected by the increase in tax compared with what they can offset through capital allowances.

David Frost of the British Chambers of Commerce said:

“The rise in small companies corporation tax will have a particularly damaging effect”

on small business,

“with 71 per cent. of those surveyed saying it would harm their business. As a Chancellor who champions enterprise and acknowledges the importance of small business to the UK economy, many of our members feel let down and are dismayed by the measures taken, which will hit their competitiveness and increase their tax burden.”

That is not exactly a ringing endorsement of the Chancellor’s measures.

The Chancellor said in his speech that the extra revenue from the increased small companies corporation tax rate would be recycled to

“legitimate small businesses investing for the future”.

What an extraordinary way to characterise small businesses—to imply that a large number are somehow functioning illegitimately.

The Chancellor may have been referring to the measures taken by Her Majesty’s Revenue and Customs three weeks before the Budget, when HMRC decided to halt with a sledgehammer the sideways loss relief, an opportunity for investors to invest in high-risk businesses that allowed them, if the businesses failed, to offset losses incurred from those investments against their other income. It was a useful way for small companies with a significant equity gap in external investment to get it from wealthy individuals. That measure has been stopped. It was stopped in order to deal with abuse elsewhere, but the impact on many high-risk sectors will be keenly felt. I urge the Minister to enter into discussions with the Treasury and the Chancellor to modify that measure during the passage of the Finance Bill.

This is the first time that I have served under your chairmanship, Mr. Caton, and I hope not to stray too far and incur your wrath. It is a particular privilege to speak after two such experienced people involved in business, who have mentioned with undue modesty the number of people whom they each employed directly as well as the extended number of people employed and supported via the family.

I congratulate particularly my hon. Friend the Member for Northampton, South (Mr. Binley) on his early-day motion 928 highlighting the issue and his continuing work, and the right hon. Member for Oxford, East (Mr. Smith) on his excellent speech in the House yesterday. I heard someone say as they left the Chamber afterwards that he was running a master class in small business in the House of Commons. Having read Hansard this morning, I think that that is a fair reflection.

My first interaction with small business came when I was 18 or 19. I was asked as a Conservative to stand in for a Member of Parliament who was called away at the last minute. I thought that I was going to go along to a group of one or two shopkeepers, newsagents and so on. It was my first surprise at the size of small business and its importance, which has been highlighted today. On my desk, I still have the little chip of concrete from the Berlin wall that I was given. It says:

“The Federation of Small Businesses: chipping away at regulation and bureaucracy wherever it may be found.”

Small businesses are great advocates.

I was pleased to have received a note from my hon. Friend the Member for Northampton, South saying that the debate was happening. I looked down the list and saw that everybody to whom he had sent it except me had great business experience. Having spent10 years as a banker, I became frustrated with people who said, “Those who can, do—those who can, move away from assisting and teaching to set up or help set up very small businesses, but nothing of any size.”

Banking has given me an insight, and my work as a constituency Member of Parliament has perhaps given me a deeper insight, into businesses’ impact on communities. In Southend, the names of roads, parks and schools all reflect support from business people and entrepreneurs who moved from making money to being social entrepreneurs. Sadly, many of those names are names of 100 years ago. I question whether businesses, especially small businesses, with all the burdens on them, still have the time, energy and inclination to contribute. There are notable examples in Southend, but not of the magnitude of many years ago.

To get more in touch with businesses, I run an annual business survey. I am currently receiving and analysing the 2007 survey, but I shall mention the 2006 survey. This is not a party political point—I do not mean it as a criticism of the current Government—but I suspect that most businesses are not great friends of Government, be they Labour or Conservative. Nevertheless, I was quite shocked by the answer to the first question, which asked:

“Do you believe that the Government understand the concerns of the business community?”

In one way or another, 84 per cent. said no. That is quite a shockingly large number. I will certainly ask that question yearly to monitor the Government’s performance, and am particularly interested to see the results as and when there is a Conservative Government.

As a Back-Bench MP, I try to engage with my constituents. Sometimes it is not successful. I have a survey with a Post-It note attached:

“No further surveys. See overleaf!”

I thought that it was going to be a rant at my personal performance.

“Dear James”—

that sounds good so far—

“Please don’t include me in any further surveys”.

That does not sound so good.

“If that Gordon Brown taxes me or my car any more I am going to close my business and start claiming dole money! It will not be worth my working.”

The letter says “by the way” that the taxes and this Government are “a crock of”—well, it goes on further—and ends:

“Good luck with your survey. Hope there will be enough businesses left to fill it in.”

Clearly, that came from a very angry man, but a KPMG survey says that 70 per cent. of business regulation falls on businesses with fewer than10 employees. Calvin Coolidge famously said that the business of America was business. Without business and wealth generation, there is no national health service, no education system, no social security and no society as we know it. My hon. Friend said that we must make heroes and role models of people involved in business, and he was absolutely right. I am rather reassured to see “The Dragons’ Den”, a popular TV programme about entrepreneurs—I was surprised to see the Clerk of my Select Committee presenting a business idea—but not once have I heard anyone on that programme talk about the Government support and help that they have been given. Most people do not turn to Government agencies.

I mention “The Dragons’ Den” because of the excellent Richard report commissioned by my hon. Friend the Member for Hertford and Stortford (Mr. Prisk). I did not appreciate before reading the report a second time that Doug Richard was a dragon from “The Dragons’ Den”. The Richard report identified £12 billion in spending on support for small business. At the very best, there was no credible link between that expenditure and direct correlation. The Minister shakes her head. I have something from Southend that might in many ways support her point rather than mine—it speaks of the excellent work that Southend is doing at a micro level—and I am sure that she can reel off examples of individual cases that are doing very well, but that is an enormous sum. She might reflect that if that money were taken out of the taxation system, remaining with businesses for them to invest in themselves and the community, it might generate more tax revenue going forward.

I am concerned about the general direction of travel. The complexity of having two leaders is discussed a lot. In my patch, in the south-east, regeneration is a big issue. I become desperately concerned when Government bodies talk about their objectives of creating business, because regeneration organisations and councils do not generate business. That attitude pervades Parliament. A Member of Parliament once said to me, “Being an MP is rather like being a small business man, because we are running an office and we employ people.” That MP clearly does not understand business, because it is nothing like running a business. The main part of running a business is making a profit—that is healthy, and is a thing for heroes to do.

I begin by congratulating the hon. Member for Northampton, South (Mr. Binley) on securing the debate on this immensely important subject, particularly in the light of yesterday’s debate on the Budget. The hon. Gentleman still runs two businesses. I had several, but was unable to juggle my business and parliamentary interests, so I congratulate him on being able to do that.

I remain simply as chairman of the company that I founded in 1989, not as an executive officer. I hope that is clear.

I am grateful to the hon. Gentleman for that enlightenment. My point is that it is important that we have legislators who understand the challenges of business, particularly small business, from a practical standpoint.

The right hon. Member for Oxford, East (Mr. Smith) talked about a local study of small businesses, which was extremely interesting and useful. On average, 80 per cent. of small, local business revenue goes back into the community, so those businesses are absolutely vital to any community.

The right hon. Gentleman also talked about energy. It is regrettable that the Carbon Trust will not do free energy surveys for companies that spend less than £50,000 a year on energy bills. Will the Minister address that in her comments? Given that there are more than 1 million small businesses in Britain, would it not be sensible to give them more downward help with that? Such businesses are keen to play their part in conserving the environment and, of course, keen to cut their energy bills as much as possible.

I have a few things to say about the Budget. I do not have the depth of knowledge and understanding of these matters of some hon. Members who have spoken, but I think that it is extremely regrettable that £1 billion appears to have been taken away from small businesses to woo big businesses. That is the perception of many commentators. The idea is that there is balance and that the additional money that will be taken away in corporation tax will somehow be restored by the research and development tax credit and the new annual investment allowance of £50,000. However, many small businesses invest in people, not equipment.

During the Budget debate, I picked up the Liberal Democrat policy change about flexible working being extended to people below the age of 18. What assessment has the hon. Lady made of the likely impact of that on business?

That is slightly off the subject that I am currently pursuing. I think that the hon. Gentleman refers to my speech on my ten-minute Bill yesterday, when I said that there should be a full impact assessment and a pilot with pre and post-implementation assessment before the right to request flexible working could be extended to all employees. I said that it would be beneficial to extend to the parents of children between the ages of six and 18 the right to request flexible working. If he reads Hansard, he will find that I quoted a number of studies into the beneficial effects that have been observed and measured by the Department of Trade and Industry and other reputable bodies, and other research.

I want to touch on the issue of skills. According to a Federation of Small Businesses survey, 25 per cent. of the people who apply for employment in small businesses have problems with numeracy and literacy. The British Chambers of Commerce commented that 22 pieces of paper have to be completed for an individual to take part in “train to gain”. We have to make education in numeracy and literacy easily accessible for people who do not have time to fill in paperwork.

The FSB also discovered, in a survey of its members, that 35 per cent. of them do not employ anyone because of the perceived risks. The Government should simplify the work of employers and ensure that they are not burdened with being unpaid tax collectors and distributors of benefits or with other requirements. It is all too complicated. When I ran a business, I had to employ someone to do the wages because I could not cope with the complexity of having to do all that administration, which disproportionately increases the burden on small businesses.

Will the Minister comment on the fact that some management courses are not available to companies of fewer than 10 individuals? Embryonic, growing companies that seek to increase their expertise and competitiveness should be allowed to access that kind of help. I have a shopping list of things that the Government could do to help small businesses. They have done some work, with public procurement, to simplify and standardise the procurement process, but they could do more to encourage local authorities to use the expertise of local companies rather than continue the current, slightly lazy, approach of seeking to do all their business with a small number of larger companies. If local authorities offered smaller contracts to more local companies there would be a much greater benefit to their local areas, because of the benefits that local businesses pass on to the local community, which I mentioned earlier.

The hon. Member for Northampton, South talked about Government support. Some £12 billion is available, but small businesses have to know that it is there. An FSB survey found that 65 per cent. of small businesses were not aware of the R and D tax credit. Why are only incorporated businesses permitted to benefit from that tax credit?

Time is pressing, so I shall rattle through my final points, the first of which relates to the compliance burden. Is it possible to review the regime for compliance, because intervention should be proportionate to the degree of risk and cost? We could shave a lot from the regulations. On inspections, why cannot certificates with a definable period be issued, so that a company knows that it will not be inspected again for a long time? Can the roles of many of the inspectors be merged, because sometimes there is a long line of inspectors trotting along to a small business? Can we change the role of inspectors? Can we move them away from having a tick-box mentality towards a more supportive role that enables companies to comply, rather than one that catches them out when they do not? Can more people who have business experience be involved in undertaking things such as regulatory impact assessments?

The hon. Member for Northampton, South discussed the regulatory burden from Europe and gold-plating, and rightly acknowledged that we are doing this to ourselves, because although regulations are being handed down, we are making them worse. If people with real business experience, rather than Whitehall bureaucrats and lawyers, were undertaking the regulatory impact work, the Government would be in a better position to serve the interests of business.

I, too, commend my hon. Friend the Member for Northampton, South (Mr. Binley). As he often does, he spoke with passion and knowledge, giving us a comprehensive view of the issues to be addressed. He began by reminding us why small businesses matter. Economically speaking, they generate more than half our national income and employ 58 per cent. of the private work force, and so are crucial to the economy. As several hon. Members have said, they are often the key innovators—the ones who make crucial changes in technology and business development that help the economy move forward.

As the right hon. Member for Oxford, East (Mr. Smith) rightly said, small firms also make a social contribution. I, too, have read the excellent report by the Federation of Small Businesses team from Oxfordshire. I met the people involved last Friday and had the opportunity to examine what they have said. The right hon. Gentleman rightly said that it is often the local, small enterprise that makes a quiet, positive social contribution to the local community, and does so without wishing to seek publicity.

We have heard about how this Government have failed small businesses, and about the rise in the number of regulations. The equivalent of 15 new regulations are being made every working day. They have a disproportionate impact on the smallest employers. The FSB has shown that the burden of complying with red tape costs each small firm seven hours a week.

The tax system has become hideously complex under this Chancellor. Not only are businesses paying more than £50 billion extra, but the charge is made in a punitive way. As my hon. Friend the Member for Ludlow (Mr. Dunne) rightly pointed out, charges such as stamp duty land tax on long leases impact before a business even starts to trade.

While this Budget has welcome news for large companies, it has dismal news for many small businesses. Whatever Ministers may claim, the Chancellor is seeking an extra £820 million by 2009 from small companies. While it is true that the annual investment allowance will provide some support, it will be of no use to millions of small firms. The point is highlighted by a British Chambers of Commerce survey, which showed that 71 per cent. of small firms believed that.

I hope that the Minister will explain why only capital investment is regarded by the Treasury as legitimate. What about innovation? What about the investment in people that was mentioned by the right hon. Member for Oxford, East? Are those things not legitimate? What about shopkeepers, accountants and professional services? All of those small enterprises seek to innovate and change, but they will be completely excluded from any benefit under the allowance in question.

The Government’s attack on the self-employed is not limited to corporation tax. Their plans to limit managed service companies follows on from the clunking fist’s crude attempts with the IR35 legislation. No one is against preventing unreasonable tax evasion, but the crude way in which this Government seek to attack the self-employed damages legitimate enterprises, especially in fields such as IT, health care and professional services.

The Minister is meant to be the Minister for small business, so will she tell us what meetings she has held with the Chancellor in order to speak up for those businesses in this matter? Did she put their case? Did she ensure that their concerns were properly represented? We need to know the answers, as do they. As we have heard in this debate, small companies are affected by decisions made across Whitehall.

Let us consider the Department for Environment, Food and Rural Affairs, whose shameful incompetence over the single farm payment has severely damaged thousands of small family farms. Did the Minister for small business challenge DEFRA over its incompetence? Did she meet, question or hold to account that Department?

The Department for Culture, Media and Sport was responsible for a huge rise in bureaucracy when it introduced the Licensing Act 2003. Thousands of small pubs, clubs and bars have been severely affected, but did the Minister for small business meet her colleagues? Did she ask why they were introducing the measures? Did she seek reductions in the bureaucracy?

Let us consider the Department of Trade and Industry itself. It is seeking to oversee the closure of more than 2,000 sub-post offices. Many of those businesses tell us that they would dearly love the opportunity to widen the services that they offer, to be able to compete in the market and to offer new services, but Royal Mail and the Minister’s departmental colleagues are refusing to allow them to do so. Why is that the case? What has the Minister done to stand up for those enterprises? Has she put their case? She must tell us, and them, what she has done to deserve the title of Minister for small business.

Time prevents me from mentioning a number of issues, but I should mention start-ups. Most start-ups occur not in commercial premises but in a home. Home-based businesses offer many advantages, as the right hon. Member for Oxford, East mentioned. Will the Minister tell us what she has done specifically to help home-based businesses? Just as important, will she tell us which issues the Government are considering in this field? Such businesses are great for female entrepreneurs, given the particular opportunity that exists to get the right work-life balance. I should be interested to hear the Minister’s response.

Another part of the Department’s remit is business support, which has been mentioned. Sadly, although much money is spent, Ministers all too often have no idea whether their programmes have any effect. The CBI has stated:

“There is much anecdotal evidence about which schemes work and which ones are less successful. However, there has been no systematic assessment of the business support network to look at what schemes exist and which ones are most effective and add most value.”

My hon. Friend the Member for Rochford and Southend, East (James Duddridge) mentioned an interim report that was published last month. The work was done by a small business taskforce led by the entrepreneur Doug Richard, who is an American citizen. It found that overall the Government are spending roughly £12 billion on small business support, but that they cannot, or will not, say whether the money is working. Part of the problem is the fact that the system has got out of control. Roughly 3,000 schemes are being run by approximately 2,000 public bodies and their contractors. Just as concerning as that complex maze is the value that we are getting, because at best, a third of the money is disappearing in administration. In some cases, all of the money goes towards paying an individual, and there is no money left to be handed out.

Equally, business confidence in state advisory services is low. The FSB has shown that just 4 per cent. of small businesses use Government-funded support, whereas more than half consult people such as accountants and those in the private sector. Given the amount of money spent it is remarkable—although sadly, less surprising—that the Government can have so little to show for it.

As we have heard in this debate, small businesses matter, but sadly—I say this with no enthusiasm—all too often this Government have failed them. Ministers do not understand them, and are taxing and regulating them without recognising that those same enterprises generate the wealth that pays for the schools and hospitals on which the rest of us rely.

Last week’s Budget typifies what is wrong, because the Chancellor is increasing small company taxes and continuing to tie firms up in red tape, while DTI Ministers are silent on these issues. They have shown themselves to be either of no influence in the Government, or so fearful of the clunking fist at the Treasury that they are unwilling to stand up for small businesses. Conservative Members believe that it is time for a fairer deal for small firms. We want a simpler, fairer tax system, and we believe that it is time to reduce the regulatory burden, and that the Government have failed to provide either an effective or an efficient business support system.

In her reply, the Minister must explain herself. She must show us and small businesses what she has done to defend their interests, and why she is supporting the Budget tax hike on more than 1 million small companies.

I join other hon. Members in congratulating the hon. Member for Northampton, South (Mr. Binley) on securing this debate, and the way in which he made his contribution in the best tradition of the House.

I have only nine minutes, so I shall deal quickly with some of the issues that were raised. The most important contribution that any Government can make to ensure the well-being and prosperity of the small business sector is to manage the macro-economic environment responsibly and successfully, and that is what we have done. We have had 58 consecutive quarters of growth, and no stop-go, which we experienced under the previous Conservative Government. We have had low inflation and a huge increase of 2.6 million in employment. That good macro-environment has led to success in the small business sector. I could not disagree more with the hon. Member for Hertford and Stortford (Mr. Prisk), who does not represent the small business interest well in pretending that this is an environment in which it cannot prosper. I far preferred the contributions of some of his Back-Bench colleagues who celebrate the success of the small business sector in contributing to UK growth and prosperity.

To take a few figures, we have 600,000 more small businesses than 10 years ago, which is a cause for celebration for the many people who work hard in those businesses. The number of people working in small businesses has reached close to 1 million, and that, too, should be celebrated. Of those working in the private sector, 59 per cent. are employed in small and medium-sized enterprises. That is a cause for celebration. The SME sector now contributes as much as the large-business sector to UK output: 50 per cent. of gross value added and 51 per cent. in turnover. Start-ups have exceeded closures for 11 years running, which is good, and survival rates are much higher today than a decade ago. Small firms’ productivity growth has exceeded that of large firms over the past 10 years, and that is a cause for celebration. I agree with the hon. Member for Northampton, South that new businesses are the greatest single source of new jobs.

Unlike the hon. Member for Hertford and Stortford, I celebrate and congratulate the small business sector, and work with it to build on that good record rather than decrying it. I recognise that SMEs are the vital engine of growth in the UK economy; I recognise that they drive innovation; I recognise that they help to drive productivity growth by providing a competitive spur; and I recognise that they are the greatest single source of jobs.

I very much welcome the contribution of my right hon. Friend the Member for Oxford, East (Mr. Smith). I had the pleasure of meeting Sandy Lovatt at the Federation of Small Businesses annual conference and listened to his findings. Particularly important was the role that he recognises small businesses can make in their local community by contributing to employment growth and to economic growth through purchasing and selling within their local community.

The hon. Member for Solihull (Lorely Burt) referred to the Carbon Trust. In an interesting survey in the report, “The Economic Ecology of Small Businesses in Oxfordshire”, one of the respondents said of the Carbon Trust that they regarded it as

“the best organised Government scheme.”

Special mention was made of its website and the respondent said that in the future he intends to take

“a second interest-free loan from the Carbon Trust to replace old and inefficient machinery.”

That demonstrates the importance of the matter.

Turning to the Budget, I want to hit the nail on the head. Let me be clear again—we were trying to be clear last night—about what the Budget is about. We hear the same tedious narrative from the Opposition, full of misinformation and mistakes, which is not worthy of a responsible Opposition—an Opposition who, when they were in government, caused the two worst recessions since the second world war, allowed inflation to run at 10 per cent., let interest rates go up to 15 per cent. and oversaw an economy in which unemployment hit 1.3 million, and 1.5 million people had their lives destroyed by negative equity. That is not how we will run our Budget. The most important imperative in the Budget was to maintain a strong macro-economic environment and continued stability so that we could have continued growth. We will not return to the stop-go of the years of Tory mismanagement, which is why the Chancellor deliberately crafted his proposals in a fiscally neutral way. Let us see what those proposals achieve for the SME community.

There are 4.3 million SMEs, of which 3.4 million operate as sole traders. Those sole traders will not be affected by the changes in corporation tax for SMEs, but they will benefit from the 2p cut in income tax and will be better off. Two thirds of FSB members are self-employed businesses, and they will be better off. For small businesses, we have responded to exactly what the CBI and the FSB have told us and what we ourselves and I myself believe to be true: that Government support and fiscal policy should concentrate on supporting the growth of the SME sector. That is why, in a fiscally neutral way, we have transferred the resources to increase the tax credit for research and development to 175 per cent. for small businesses; that is why we introduced the annual investment allowance that will support that growth tax free; and that is why—the hon. Member for Hertford and Stortford chose not to mention this—we introduced the specific initiative asked for by the FSB to reduce business rate relief on empty industrial property.

My right hon. Friend the Secretary of State for Trade and Industry said last night that an SME must increase its investment only by £2,300 in 2009-10 to reduce its tax liability by £500 under the new regime. That will offset the tax increase through investment. Ninety per cent. of tax-paying companies would pay less tax if they invested less than a quarter of their profits back into the business, which is what we want them to do.

No. I am not interested, and I do not have time. I have heard the same speech from the hon. Gentleman three times in the past five days.

Mr. Martin Caton (in the Chair): Order. I have allowed a certain laxity to the hon. Gentleman who has made comments from a sedentary position, but I think the Minister should be allowed to finish now.

I want to deal with the Opposition’s absurd report on regulation. First, the research comes from a Tory activist working from his flat—the same Tory hopeful who identified the £21 billion cuts in public expenditure that the Leader of the Opposition is now denying he supports. Those cuts included, interestingly, the abolition of tax credit for films, which would have hit manufacturing hard. The hon. Gentleman asked me what I do for the Department for Culture, Media and Sport. I certainly do not support doing away with that tax credit.

That report demonstrates yet again the Opposition’s complete inability to face in the same direction and display consistency for more than two minutes at a time. They criticise publicly funded support schemes by saying that on one hand we spend too much on admin, and on the other hand we should spend more on admin to ensure that we properly evaluate schemes. Those statements are wrong. First, we do not spend too much on administration—less than 10 per cent. through the regional development agencies—and we evaluate schemes because our entire policy is built on what works.

Of course we want to rationalise. We were there a year ago, and we knew that we needed to reduce from 3,000 schemes, which is why the Department of Trade and Industry has reduced from 100 to 10—

Mr. Martin Caton (in the Chair): Order. We must now move on to the next debate.