We now move on to the debate on economic performance and business. Mr. Speaker has selected the amendment in the name of the Prime Minister.
I beg to move,
That this House notes that, despite inheriting a strong economy and presiding over 10 years of growth, the Government has raided pension funds, increased taxation, reduced savings, encouraged debt, increased government borrowing and that 1.7 million people are now unemployed; further notes that inflation is at a 16-year high, unemployment is rising at the fastest rate for 17 years and property sales are at a 30-year low; regrets the pain that is now being caused to business by the severe financial turmoil and the Government’s failure to prepare the British economy for any downturn; further notes with concern the Ernst & Young Item Club’s report that the UK economy has deteriorated dramatically in the past three months and is already in recession; further notes that the number of British businesses in distress has more than doubled since the start of the year; expresses concern that the limited availability of credit and the predatory behaviour by both banks and HM Revenue and Customs risks exacerbating the detrimental effects on business; calls on the Government to introduce an urgent package of measures to alleviate business pain, including allowing small and medium sized enterprises to defer their VAT bills for up to six months and cutting small business National Insurance contributions by 1p for at least six months; and endorses these measures as a first step towards alleviating business pain.
I move the motion tonight at a time of probably the greatest threat to business survival that this country has seen for 70 or 80 years. The prognosis is dire, the pressure is great, and many businesses already are feeling that the pressures on them will drive them to extinction—[Interruption.] The hon. Member for Wolverhampton, South-West (Rob Marris) may well laugh, but his laughter here will not be appreciated by his constituents who are facing this business pressure. Nor is the House pleased that there is no Minister of Cabinet rank to reply to the Opposition motion tonight.
There have been Cabinet Ministers in the other place in the past, but when we were in government, they were always matched by a Member of this House of Cabinet rank. When Lord Carrington was Foreign Secretary, the then Ian Gilmour was in the Cabinet here; when Lord Young was in charge of the Department of Trade and Industry, there were two subsequent Ministers of Cabinet rank in this House. Now we have an unprecedented situation in which the noble Lord Mandelson is in the Cabinet speaking for business, but no one of Cabinet rank from the House of Commons sits around the Cabinet table to speak for it. I hope that that deficiency in accountability will be remedied.
We have seen boom and bust before, and I am perfectly prepared to admit that we have seen deep and difficult cycles of economic activity even under a Conservative Government. We saw it first in the ’70s with a secondary bank collapse and absurdly judged loans to Latin America. We also saw as part of a cycle of sheer idiocy the then adviser to Prime Minister Harold Wilson, Harold Lever, say that countries do not go bankrupt, but the banks that lend money to them can. It seems that we have seen a complete loss of collective wisdom among the banking sector today.
Boom and bust has been a regular phenomenon in history; I fell on something that proves that beyond all doubt. It was these words:
“"The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
That was Cicero in 55 BC. He foresaw most things, although, it would seem, not quite the necessity of having a budget for international development. I may not quite be Cicero—my humility extends that far, although I am told that Demosthenes was a little chap—yet in analysing the history of booms and busts, I have tried to be honest in what I write.
I can refer the House to a document that I wrote in 1993, which, I am reliably assured by someone who subsequently worked in No. 10, was pinched almost wholesale by the then Chancellor and turned into public policy—at least the good bits were, such as its recommendation for independence for the Bank of England, but not, I am afraid, the other good bits calling for caution and good sense in the management of the economic cycle. It is all there, and perhaps the now Prime Minister should read it once again and realise his own folly.
The Prime Minister inherited the best economy that any democratic party has bequeathed to another. New Labour promised to be prudent, and to be fair, that lasted for a couple of years. But it quickly softened and buttered people up with changes of language and habit, which quickly started the slippery slope on which the country is now journeying. New Labour refused to use the word “spending”. What might seem just a little twist in jargon showed an underlying pollution of its attitude to prudence. “Spending” became “investment”, but spending, except in certain classical terms, is not investment. As soon as the Government polluted the language, they polluted their intellectual integrity—now even the BBC is happy to use such language.
The Government’s first action was to attack pensions. We have spent more than 10 years campaigning against the raid on our pension funds. The short-sightedness of that attack on pensions is now having dire consequences for many people embarking on their retirement. The Prime Minister sold our gold at the worst possible price—the cost can now be measured in many billions. Crucially—again, this is in my document from 15 years ago—he completely mucked up the regulatory framework. He dismissed in excoriating terms the Conservative party’s suggestion that the Bank of England should continue to enjoy supervision over the creditworthiness of banks, saying that it was nothing more than the old boy network that was typical of that party. How wrong he was.
On the pensions point, the hon. Gentleman is completely wrong. The House has debated the issue a number of times, and each time has come to a decision that is contrary to the one that he puts forward. He well knows that the responsibility for the pension—[Interruption.]
Order. The House must give the hon. Gentleman the time to make his point, but he must make it briefly.
The hon. Member for Rutland and Melton (Alan Duncan) knows that the decision on the pension funds was nothing to do with the Prime Minister—he was continuing a policy undertaken by the previous Tory Government. The problem with the pension funds was the dotcom boom and the fall in share prices.
I have not heard such economic lunacy in the House for a long time. The Chancellor’s decision in his first Budget to raid advance corporation tax credits for £5 billion a year destroyed our pension funds. The House has been taking decisions that are contrary to my opinion for well over 10 years, and that goes a long way towards explaining the mess that we are now in.
The key thesis, which the Opposition have been advancing for a long time, is that anyone who thinks that they can defy economic gravity over an extended period, to the point that they believe that the economic business cycle has been abolished, is foolhardy. The most attested and continuing economic phenomenon is the business cycle. The only issue in doubt is how long the cycle is likely to last. What should underpin any analysis of the importance of the business cycle is that the fiscal policy of a Government, if they are wise, should be counter-cyclical. A sensible Chancellor should save in the good times so that something is in the kitty for the bad times. The former Chancellor, now Prime Minister, claimed to be doing just that but did exactly the opposite.
At the end of well over a decade of unprecedented, continuous economic growth, where should Britain be? We should have lower taxation, lower spending, high savings, Government borrowing should hardly exist—we should be in surplus—we should have a massive pensions pot, as we had but no longer have, and we should have low unemployment, and yet we start with unemployment of 1.7 million. However, at the end of a long, prosperous and significant period of economic prosperity, we are at the wrong end of the scale. Taxes have shot up, spending has continued to climb dramatically, borrowing is very high, debt is beyond any magnitude that anyone could have predicted, and the percentage taken by the state is up to, and will exceed, 39 per cent. The Chancellor has consumed the boom.
The motion refers to increased taxation, and the hon. Gentleman says that taxation has shot up. Is he surprised to hear that during the 11 and a half years of Mrs. Thatcher’s stewardship, from May 1979 to November 1990, the proportion of taxation to GDP was more than five full points ahead of the proportion during the period for which the current Prime Minister was Chancellor. The hon. Gentleman admires that soi-disant priestess of low taxation, but it was the Labour party that reduced taxation in the first 10 years after its return to power.
In 1979, thanks to a Labour Government, we inherited an economy that was on its knees. The necessary corrections had to take place over a long period, to clear up the mess that we inherited. In contrast, the economy that we handed over to new Labour, as it was then happy to be called, was in the best imaginable condition, and generations of people in the future will lament the fact that new Labour had the best and turned it into the worst.
When the hon. Gentleman talks about handing over the economy in mint condition in 1997, does he include public sector debt, which was then running at 43 per cent. and by his own statistics is now running at 39 per cent. of GDP? When he talks about the semantics of investment versus spending, how does he classify a £250 million new hospital for my constituency? Is that investment or spending?
The hon. Lady will want to eat her words in due course, even on her own basis of accounting. Thankfully, we can advise her of the truth, and we should thank my hon. Friend the Member for Braintree (Mr. Newmark) for his excellent work, which has revealed in detail the Prime Minister’s false accounting, whereby much that has been spent has been hidden. When I was in the oil business, something that was not paid for was not properly bought. Looking at the other side of the coin, a deal is only done when the money is in the bank. As Chancellor, the Prime Minister put so much off balance sheet, on a 25-year mortgage, that the payment for those hospitals and schools will not be completed for more than two decades. If the hon. Lady is proud of that debt—she is—we look forward to writing to her local paper to point out exactly where her pride lies. I am sure that it will come before her fall.
On the point made by the hon. Member for North-West Leicestershire (David Taylor), the Government have claimed that the national debt is £645 billion. However, as my hon. Friend the Member for Braintree has pointed out in an undeniable piece of simple but honest arithmetic, the fact is that it is £1,854 billion—equivalent to 126.9 per cent. of GDP or just under £76,000 per household.
I will give way in just a second.
The present financing of this country’s debt exceeds the annual expenditure on either law and order or defence. The Prime Minister’s claim that debt is considerably lower than it was a decade ago is so self-evidently false that I am astonished that he is shameless enough not to be prepared to come to the House to apologise. The man who has mortgaged the country needs to be better at the arithmetic.
In relation to the hon. Gentleman’s earlier comments to me, I shall try to refrain from laughing at his malapropisms in future, as opposed to the content of his speeches.
What I actually meant when I spoke from a sedentary position just now was that the hon. Gentleman’s figure was a nonsense figure. It was a nonsense figure because it compared apples with oranges. If we measure the figures in the same way—even taking into account all the private finance initiative projects, as I think we should—the accumulated national debt in the United Kingdom, which, incidentally, doubled under the last Conservative Government, is considerably lower as a proportion of GDP product than the national debt in, for example Italy, France and Germany, let alone Japan. That is because the present Government paid some of the national debt while they were fixing some of the very leaky roof that we inherited after 18 years of Tory misrule.
As for some of the comments that the hon. Gentleman made about my hon. Friend—
Order. Interventions are becoming speeches.
If the present Government were required to follow the same standards that a business follows in explaining its balance sheet and honestly reflecting its debt, they would become an unbankable proposition. The debt is far bigger than the Government are willing to admit. I consider that my hon. Friend the Member for Braintree has done the country a service in presenting the figures honestly; but let us look at the other side of the equation.
I painted a picture of Government profligacy, but the problems really arise when Government arrogance is combined with hubris on the part of bankers. We have seen that once again, with an enormity that no one could ever have contemplated. Debt, and the extension of debt, became nothing less than an exercise in pyramid selling, and as a result the banks have had to be bailed out. The question remains: what next? Will we now see calm and certainty in our financial markets, and therefore in our business community?
My fear is that it is not over yet. It may be that the best we shall see is great volatility, but even that can be very destructive. Many instruments in hedge funds have not been put into the market to cause further upset, but they will. When that happens, if it happens, it will not just affect banks once again; it will affect what is left of pension funds, and hence it will affect equities as we have not yet seen them affected. There is a real danger of further institutional turmoil, despite the relative calm that we have seen in the banking sector over the last few days.
On the back of that, we can already see many of the malign consequences hitting the business community. Everyone will now wish for lower interest rates, in the hope that they will somehow stimulate further economic activity. The base rate has gone down a little and will probably go down further, but the real cost of borrowing has not gone down in the same way. Indeed, it has gone up. We are seeing a severe divergence between base rates and borrowing rates, and in the real world it is the borrowing rate that will hurt businesses.
Moreover—again, we have not yet seen this hit the British economy—that potentially conflicts with the need to finance Government borrowing. We need a low rate of interest for economic recovery, but perhaps a higher rate to fund Government borrowing. If it is just the former, the danger is that we will see—alongside everything else that we have seen—a dramatic collapse in the value of the pound.
Whatever variable we look at now, the prognosis is dark. That prognosis has been put to the country by the likes of Ernst and Young and Deutsche Bank. The former has said that it expects unemployment to double, the latter that this will be not a shallow but a very deep recession. Already in the economy, we see the figures becoming more and more distressing. We have seen unemployment rise by 146,000 in the last quarter, and we have seen a member of the Bank of England monetary policy committee say that it is likely to exceed 2 million by Christmas. We have seen others say that jobs will be lost at a much faster rate than the rate at which the Government can create them, and that unemployment may even exceed 3 million.
We have seen the number of property sales collapse by more than 50 per cent. Capital Economics has said that house prices are likely to plummet by more than 35 per cent. Already there are more than 300,000 householders in negative equity, and the value of mortgages lent to British home-buyers fell by 95 per cent. in August. According to the CBI, manufacturing confidence has collapsed: the single-quarter fall is bigger than it has been for 28 years. So the picture is already dire.
No doubt the hon. Gentleman has a point. The botch was a serious botch. However, given all that we have seen since, I do not think that it can be blamed for what has happened nearly as much as the former Chancellor’s 10 years of economic mismanagement.
I fear that the picture that I have painted will now be converted to the most detrimental squeeze on small and medium-sized enterprises. I do not think we have seen anything yet. We already see the prospects of repossessions and insolvency, and the danger of insolvency—or the midway point, putting a company into administration—is that this will not be like previous recessions, in which many companies were able to emerge from administration or at least remain as entities. It was at least possible for someone to take them over and restructure them, breathe life back into them, and return them to the commercial world as going concerns. The danger on this occasion is that such companies will be killed stone dead, and because there is insufficient finance around, there will be no prospect of their revival in any shape or form.
Given that the hon. Gentleman has been speaking for 21 minutes and that all he has done is try to rubbish the past 10 years, may I ask whether he has a single positive suggestion to offer small businesses in this time of crisis—or is this just an exercise in rhetoric?
I am afraid that the hon. Gentleman’s pettiness knows no bounds. These are probably the most serious issues that we have had to discuss in the House for decades, and it is important for him to understand the origins of the severity of the problem. If he reads the motion, he will see exactly what we are going to do, and if he listens a little longer, he may learn about what we are going to do. Twenty-one minutes is not long for a Front-Bench speech, and the hon. Gentleman should be patient instead of being so petty.
We are seeing the British economy go from overheating to permafrost in one fell swoop.
The key to that is bank lines. It is severely in doubt whether the Government’s promises will be converted to the real lending and cash flow to which the Prime Minister and other Ministers have referred. We need to recognise that the banks are already facing great difficulty. I have some case studies. I will not go through them all; I think that all Members will have encountered similar cases in their constituencies.
It goes a little bit like this. The bank says, “You used to have £100,000 as a bank line, but now I am going to take it back.” Then, because it has some guarantees from the company, it calls in the assets and forces the company to realise them by selling them at something like half their value in a broken market. The bank takes the money. In comes the VAT man and says “Pay my VAT.” The combination of those two activities does not just cause the company difficulty; it closes it down. In the absence of alternative sources of funds, there are many companies now facing those pressures. They are being closed down by a combination of HM Revenue and Customs and the banks. On the back of their closing down, those involved often have to cash in personal guarantees and sell their main asset, which is their house. The picture is very grim.
I commend the Daily Mail and The Sun for their campaigns on the things that ought to be done to try to assist cash flow, because even the majority of companies in this country will be in a battle for survival.
There are some things that we can do and must do. Yesterday, at our business survival summit, we proposed a series of measures. Like the Government, we accept that paying promptly is crucial. If councils and Government agencies pay after ten days, that can only help struggling businesses to get through this difficulty. We will be watching very carefully to ensure that Government organisations pay as the Government have promised that they will.
As well as the public sector setting an example, does he think that larger companies that are still cash-rich need to take on board that their supply chain will not be there unless they, too, do all they can to benefit the cash flow of their suppliers and contractors?
I totally agree with the hon. Gentleman’s message of great sense and I hope that all companies that can pay, will pay and will follow exactly the standard that he has just described in his intervention.
We would like to see a reduction in national insurance contributions for the smallest companies. They are the ones that employ the most people, that often live most from hand to mouth, and that have the fewest assets against which they can raise money from the bank. Although the measure is small, it is exactly of the kind that can help them get through this difficult period.
Likewise, we think that companies ought to be able to defer their VAT payments if that is what it takes to assist their cash flow. We think they should pay for that at the normal default rate; call it 7 per cent. But 7 per cent. is less than half of the 15 per cent. that banks are now charging many companies of this size. I think the Prime Minister will rue the day that he taunted us about interest rates at 15 per cent.; now, most companies getting short or medium-term credit are having to pay 15 per cent. or more.
In addition, we would like to see a reduction in corporation tax for small business, for which we have been calling ever since the last Budget, which, from the Conservative Benches, we described as a tax con. As my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) illustrated today by visiting small shops in London, we want to see small businesses applying for that business rate relief to which many are entitled but for which not all apply.
The Minister of State, Department for Innovation, Universities and Skills, has announced today £350 million for Train to Gain. The House should be aware that this is the reheating of an old announcement and, as a policy, it will not give the immediate relief that our businesses are crying out for.
This country will have to put debt on top of debt. We should be in a position to use a Government surplus to help this country turn the corner in such difficult economic times. The Prime Minister, when he was Chancellor, mortgaged this country to the hilt. We are in desperate times, which prove the abiding truth of post-war Britain: that Labour Governments always run out of money.
I beg to move, To leave out from “House” to the end of the Question, and to add instead thereof:
“notes that in the 1980s Britain experienced two recessions with unemployment reaching three million on both occasions, a thousand businesses a week were lost and that interest rates reached 15 per cent.; further notes that the roots and effects of the current financial crisis are global and unprecedented in recent decades; believes that at such a time it is essential that the Government acts to restore stability and confidence and therefore supports the action the Government has taken to inject liquidity into the banking system, to recapitalise the banks and to make funds available to resume the medium term lending essential to small businesses; further notes that the UK is better placed than in the past to get through the economic downturn with an economy that has produced three million more jobs over the past decade and enjoyed strong growth and low inflation; supports Government measures such as the Prime Minister’s announcement to reduce to 10 days the payment period from central government to small businesses and to bring forward funding for small businesses available through the European Investment Bank; and believes that the Government should reject public spending cuts at this time and continue working with the banks to ensure the availability and competitive pricing of lending to the small and medium-sized business sector.”
I welcome the opportunity to talk about the importance of small businesses to Britain’s economic strength, to pay tribute to the courage and entrepreneurship of the people running those businesses and to set out the steps we are taking to help small businesses as we face difficult economic times.
On the help that the Minister says he is giving to small businesses, will he give me a frank answer? Some £300 million of grants from the East of England development agency and other development agencies were taken away from small businesses and shifted towards housing. I have yet to have an answer about why that has happened. Is that a way to help small business?
The hon. Lady’s party is not even sure if it would keep regional development agencies if it ever got the chance.
International credit conditions led banks to stop lending to one another. This resulted, first, in the difficulties we have seen in the banking and financial system, and now in the problems being faced by small and medium-sized enterprises and by homeowners in the wider economy.
In the circumstances, it was vital and right that the Government put their full force behind, first, restoring stability and then restoring confidence. We acted decisively to do that. First, we injected short term liquidity into the lending system, with the Bank of England making available up to £200 billion to the banks under the special liquidity scheme. Secondly, we recapitalised three of the leading banks, injecting fresh capital worth £37 billion. A condition of the recapitalisation is a commitment from banks that they will maintain the availability and active marketing of competitively priced lending to small and medium-sized enterprises at a level at least equivalent to that of 2007.
The origins of the crisis are global, so at the same time as taking firm action in the UK the Prime Minister and Chancellor have been working with their counterparts around the world, and interventions similar to those that we made have been announced in a number of other countries.
Restoring stability has been our first priority. Stability and strong banks are absolutely essential for the economy to work. Without stability, small businesses cannot access the credit they need, trade in the high street slows down and the investment decisions on which the economy depends become much more difficult to take forward.
Her Majesty’s Government have acted decisively to try to deal with problems that have their root in the international credit problems to which I have referred.
Our actions on the financial front have been essential, but as the impact of the financial squeeze spreads it will hit small businesses. We will have to act decisively here, too—and we are—to help them through the difficulties they are experiencing.
If we had followed the advice of the Conservative party, we would not have been able to take the action we took over Northern Rock and Bradford & Bingley. Time after time during this crisis, the judgment shown by the Conservative party has been proven to be wrong.
Small businesses are absolutely vital to the economy, to creativity, to innovation and to enterprise. There are 4.7 million small businesses in our economy and the numbers employed in small businesses have gone up by 1.5 million since 1997. In total, they employ around 60 per cent of the private sector work force and contribute as much as large business to UK output. There is no doubt about the importance of the small business sector to the economy. The Government want to support the small business men and women who build a business, take a risk, see a market gap, innovate to fill it and employ so many people, contributing so much to the country in the process.
Does my hon. Friend agree with me and the many business people in my constituency that there is a direct correlation between unprecedented public investment over the past 10 or 11 years and the number of new small businesses within the UK economy, and furthermore that it would be an act of economic vandalism to cut public spending either now or over the next economic cycle as that would devastate—nay, crucify—small businesses throughout this country?
My hon. Friend makes a strong point and, of course, all those small business people will have heard the Opposition Front-Bench spokesman say tonight that his party wants public spending to be lower.
The World Bank says Britain is among the best places in the world to do business—it is second in Europe, and sixth in the world—but despite this good record and strong position, many small businesses are facing difficulties during the current period and will continue to do so in the months to come.
Small businesses are struggling, particularly with access to capital, and we know that the banks are not lending at reasonable rates—instead, they are lending at very high rates. Might the Government wish to re-examine their capital gains tax proposals, as to provide a disincentive when there is not access to traditional lending from banks might be the wrong thing to do?
We did, of course, announce changes to the capital gains tax proposals some months ago.
In our dialogue with small businesses, the issue they have raised with probably the most urgency is access to finance. Small businesses need to be able to borrow to invest and to keep their companies moving, and we will monitor the commitments made—to which I have referred—on the availability of finance to small and medium-sized enterprises. In addition, the Government have brokered contact between the European Investment Bank and UK banks to help release more funds for small businesses, and the four largest banks have signalled their interest in securing a further £1 billion from the EIB for lending to small and medium-sized enterprises.
How do the Government plan to monitor the availability commitment on lending to small businesses, especially in respect of ensuring due diligence? How will the banks be measured on the delivery of that promise, and what will the fact that the availability has to be on the books, even if it cannot be taken up, do to the banks’ finances?
These were the conditions to which the banks taking part in the recapitalisation scheme agreed. The Secretary of State announced this morning to the Business, Enterprise and Regulatory Reform Committee that there will be a meeting involving him, the Chancellor and the banks within the next few days.
I referred to EIB finance, but other actions can also help business gain access to finance. Earlier this year, the Government made available an extra £60 million for the small firms loan guarantee scheme, taking the total to £360 million, so that in the more difficult months to come the scheme has the resources to help many more firms.
In addition to access to finance, there is the issue of cash flow, which is another urgent concern for many small businesses. Late payment of invoices can cause severe—and sometimes lethal—problems for small businesses. That is why the Prime Minister announced that central Government would pay bills within 10 days. That will bring forward some £8 billion-worth of payments on top of the £58 billion already paid in this period. In addition, we have gone further, with regional development agencies, which spend £750 million a year with suppliers, also signing up to this target. The chief executive of the NHS has today written to NHS bodies asking them to follow suit, and my right hon. Friend the Secretary of State for Communities and Local Government will also be writing to the Local Government Association to encourage its members to play their part.
The Minister mentioned the Secretary of State for Communities and Local Government. How will the Government monitor late—or, indeed, prompt—payments by that Department when the Secretary of State told me in a written answer that it keeps no figures on the promptness of its payments?
The payment target is for central Government, and my right hon. Friend the Secretary of State for Communities and Local Government has also written to local government encouraging it to play its part.
Regional development agencies have an important role to play in helping small businesses at this time. We remember that in past recessions when the Conservative party was in power there were no regional development agencies, and local communities and areas were often abandoned to their fate. RDAs have demonstrated—for example, with the MG Rover taskforce in 2005 and in response to last year’s floods—their capacity to move quickly and directly to respond to urgent problems in their area. Let me offer a couple of examples from the regional development agency for the west midlands. It has moved to lift the £100,000 cap on selective finance for investment in England. It has made available an extra £1 million in community development finance institutions to help provide finance for firms that cannot get it from mainstream institutions. Therefore, while the Conservative party continues to place a question mark over the very future of RDAs, under this Government RDAs are already playing their part to respond to the difficulties the economy faces.
There are big issues to do with cash flow for small and medium-sized manufacturing businesses and sky-high utility bills. Commodity bills have fallen around the world in recent weeks, however, and petrol prices are now coming down. However, utility bills remain stubbornly high. Is the Minister doing anything to bash the utility companies over the head, to make sure they play their part in supporting small and medium-sized manufacturing concerns?
My right hon. Friend the Secretary of State for Energy and Climate Change made a statement to the House last week on precisely that topic, and I encourage the hon. Gentleman to read it.
As well as access to finance and helping with cash flow, another important support the Government can give at these times is making sure that correct advice is available to companies through the Business Link service, which already provides advice to more than 850,000 customers. It will offer free heath checks, providing advice and support to businesses if they want that over the coming months.
We are also working closely with business groups and others to improve the guidance for employers that is made available from Government. This matters because if Government can improve the guidance we issue, businesses have to spend less on external advice they may not need, so such services can lead to real savings for small businesses.
When times are tough, we understand that training budgets are sometimes cut. That is why my right hon. Friend the Secretary of State for Innovation, Universities and Skills today announced greater flexibility in the Train to Gain programme, making it available for more short-term training and a greater range of employees than has previously been the case.
I understand that small businesses have concerns about regulation, but, of course, some regulation is part of the decent society that we all seek to promote. We also understand, however, that that can be easier for the larger company with more resources than for the small firm. That is why in recent years we have made a number of changes that have benefited small firms in particular. For example, changes to how the minimum wage and training are dealt with will save businesses an estimated £5 million a year. Changes to the VAT annual accounting scheme are benefiting more than 1 million businesses through doubling the upper threshold for paying VAT in instalments to £1.35 million, and simplified pension scheme returns are estimated to save businesses about another £1 million.
I am grateful to the Minister for giving way. He is a generous man, and I thank him. [Interruption.] Well, he is a nice man, and I ask my colleagues not to be so mean.
The truth of the matter is that we are still threatening small businesses with sizeable additional regulation. Will the Minister agree today to put off the parental leave and flexible working proposals while we help small businesses get through what will be a very difficult two years?
We have made no decisions on specific proposals such as that. It makes sense to consider everything in the pipeline at a time such as this.
My hon. Friend the Member for Copeland (Mr. Reed) mentioned procurement, which is an important issue. Business needs work and orders to survive, and the Government, as a purchaser, have a critical role to play. We have commissioned Anne Glover, the chief executive of Amadeus, to report to the Government ahead of the pre-Budget report on removing barriers to small businesses winning a greater share of the public sector procurement market, which is worth £175 billion a year. On cash flow, on access to finance and on training and advice, the Government are working on practical measures to help businesses through the current downturn.
I should like to turn to one or two of the points that the hon. Member for Rutland and Melton (Alan Duncan) made in describing the Opposition’s menu.
I congratulate my parliamentary neighbour on a fine speech and on his well-deserved promotion, but I urge him and the Government not to be blown off course. He is rightly talking about the big picture—the world turmoil in financial markets and the leadership that our Prime Minister has shown not only in the United Kingdom but around the world. What do we get from the Opposition, who want to make out that the turmoil is even worse than it is? We get a shopping list consisting of five things: paying promptly, cutting national insurance contributions by 1p for six months, deferring VAT, cutting corporation tax for small businesses and getting businesses to apply for business rates. Is that going to solve a world crisis? No.
The people of Wolverhampton, South-West are very well represented in the House. The measures that the Opposition have suggested do need to be examined, however. The hon. Member for Rutland and Melton spoke of cutting national insurance for small businesses, but he did not say that his party proposes to fund that by abolishing reliefs on investment in plant and machinery, which will be very important to get us through the downturn and back on the road to prosperity. In fact, he was silent on the fact that his party proposes to fund its plans by taxing the investment needed by small businesses.
The hon. Gentleman spoke also of automatic qualification for small business rate relief, but he neglected to mention that the Conservative party voted against the Second Reading of the Bill that introduced that relief in the first place. I have examined the Division record and found that both the Leader of the Opposition and, perhaps to my greater surprise, the Conservative spokesman on small businesses voted against the Bill. Small businesses are entitled to react with scepticism when the Opposition suggest that they want qualification to be automatic.
In his research, has my hon. Friend noticed that the hon. Member for Cotswold (Mr. Clifton-Brown), who is on the Opposition Front Bench today, summed up for the Opposition in that Second Reading debate and announced that they would oppose “root and branch” the Bill that introduced small business rate relief?
My right hon. Friend was, of course, the Minister who took the Bill through the House, so he speaks with great authority. What the country is looking for is not such flip-flopping but the decisive leadership that this Government have shown.
Perhaps we should not be surprised by the truth of the Opposition’s stance. We remember well the recessions when they were in power—two recessions, with 3 million unemployed not once but twice, base rates of 15 per cent., 1,000 businesses a week going to the wall and untold damage to local communities. Faced with the threat of severe financial instability, this Government have acted to restore stability to the banking system. In so doing, we have protected the essential foundation upon which small and medium-sized businesses operate. Now, through the action that we are taking on early payment, on improving cash flow, on training and advice, and locally through the RDAs, we are determined to work with small businesses, which are the backbone of our economy, to help them through these difficult times.
This is one of the most enterprising countries in the world. We believe in creativity and innovation, and we see risk not as something to be avoided but as a fact of life and an opportunity for business to show entrepreneurship. We have many business people who have built world-class, innovative businesses over the past decade. Business will face difficult times in the coming months—there is no denying that—but this Government will work with British businesses to ensure that we get through this period and that they can come out the other side doing what they do best—helping our economy grow, employing our workers and making our country stronger and more prosperous for the future.
I, too, welcome this opportunity to discuss small businesses and the aid that can be given to them. I might risk the possibility of the hon. Member for Rutland and Melton (Alan Duncan) writing a letter to the Caithness Courier or the John O’Groat Journal, both of which I know he has read from time to time. On a lighter note, I cannot help but note that the Secretary of State, as the newest day boy in the other place, is shadowed on these Benches by Britain’s only downwardly mobile politician. [Interruption.] Those who know understand. The hon. Gentleman introduced his remarks with a wide sweep across the state of the economy. Indeed, he went back more than two millenniums, starting with Cicero. I shall not follow him down that line, because I would prefer to concentrate more on what help can be offered to small businesses. However, I wish to make two points first.
First, the Government did not actually create this mess, but they certainly made it worse through the hollow boasting that they had abolished boom and bust. That was matched by the hubris of the City, where a heady mixture of testosterone and greed has brought about a situation in which toxic debt seems to be on the back of all companies. The Financial Services Authority completely underestimated the scale of the problem, as the evidence that the Treasury Committee has heard makes abundantly clear. It is clear also that the FSA was deeply under-resourced, as its current chairman has recognised. Light-touch regulation has proved quite insufficient, and I cannot help but notice the irony in the fact that the Conservatives were calling for a lighter touch until a very short time ago.
Secondly, I wish to pick up on the comments of the hon. Member for Rutland and Melton on debt. It is important that we get the facts right. Although the current account has a substantial deficit, which is a matter of considerable concern, the level of debt compared with GDP as measured by most normal international measures is actually lower than in many European and G7 countries. It is important to establish that, because if we agree that the economy will need a stimulus—I certainly think that we are in recession, and that it is likely to be deep if we do not act—it is almost certain that we will need to borrow more to put that stimulus in place. Behind that is the assumption that the debt that has been put in place to help save the banks will be repaid, which is still an if. We have to hope that the measures taken will succeed, in which case that money will be repaid. We need to be cautious in our criticism on debt.
As has been said this evening, cash is the oxygen of commerce. I was in charge of businesses during the previous two recessions, so I know pretty well what most owners and managers are thinking and doing at this moment. They are stretching their creditors and shrinking their debtors, wherever possible, and they are cancelling capital expenditure, reducing orders and attempting to cut costs. That, in itself, is a downward spiral, because as the larger businesses succeed in doing those things, so the situation is passed on to the suppliers and all the way through to the small and medium-sized enterprises, which are often at the bottom of the business food chain. Above all, businesses are trying to ensure that their facilities with banks are maintained, rather than called in and reduced, and that the charge for them remains reasonable.
In addition, many small businesses that have not previously needed credit are finding that they need it because of the working capital pressure, but if they ask a bank for a facility today, they receive a polite laugh, at best. At the heart of the motion is assistance to all businesses, particularly small businesses, especially with regard to cash flow. That core sentiment ought to be shared by Members in all parts of the House, and, because I agree with it, I shall advise my Liberal colleagues to support it. Although I agree with the diagnosis, I do not agree entirely with the prescription; I have considerable doubts about it, but I shall return to those later.
The Government amendment is, at heart, about the need to restore stability and confidence in the banking system. It is clearly impossible to gainsay that; no one would argue that returning to a stable banking system is not a precursor to getting the economy to move forward. The balance of both the motion and the amendment seems to be the usual tit-for-tat that goes on between the two Front-Bench teams. I have a suspicion that the many small business men whom I know—they will be watching this debate in my constituency—will be rather put off by that, because they are looking for a little more from this House. They are looking for us all to be somewhat more constructive.
Let me address some substantive points. The first priority for any business at any time is a stable environment in which to do business, and for that reason it is crucial that the banking system is stabilised. That is the overarching prerequisite, without which we cannot proceed. We do not yet know whether what the Government have done has been successful—it would be a brave person who would say that it has—but it appears to be working. On this occasion, the Government acted firmly, and I hope that what they have done is working, because only one weapon is left in the locker: 100 per cent. nationalisation. I am sure that none of us, save perhaps one or two people who still reminisce over the 1983 Labour manifesto, wants to go down that route.
The second priority for business must be to get the economy moving again. Confidence and stability is a precursor to doing that, but some fiscal stimulus will undoubtedly be needed. Measures such as advancing spending and advancing planned investment will be important, but, to echo a point that has been made by my hon. Friend the Member for Twickenham (Dr. Cable) on many occasions, lately from these Benches, it is equally important to help people to help themselves.
Three measures can help to do that. The first is to have lower taxes for the lower paid, so that they can have more money in their pocket, which they can give to other people, who can then spend it. The second is to have lower interest rates. I sincerely hope that the Bank of England will seriously consider a further reduction in those. The third is to tackle the high cost of fuel, which is a burden on both businesses and homes. That issue could be tackled in a number of ways, not least by helping to invest in more insulation for houses. That would have the added benefit that many builders who are in trouble would receive work. I declare an interest: I live in the far north, so I have a cold house and such insulation would be very welcome.
There is no doubt that the economy needs stimulus. The third priority for business, which is what we are discussing today, is the need for short-term measures to be taken to tackle the current crisis. The Government are in discussions with the banks. It is clear that as part of that negotiation the Government must agree with the banks a protocol for the way in which the banks will deal with business. That protocol should address a number of things, the first of which is the fact that most overdraft facilities, although granted for a year, are repayable on demand. I have seen evidence in my constituency of companies whose facilities are being changed at 24 hours’ notice. I ask the Government to stipulate in a protocol with the banks that there should be a 28-day minimum period, at least to give companies the ability to renegotiate, change or seek advice and look for alternatives. The Government can and should address that core problem in that negotiation. It would be wholly unacceptable if the taxpayer, having paid for the bail-out of the banks, found only that the banks were protecting their profits by a credit squeeze on the high street.
The Government could also examine term loans. Many small businesses have term loans, which typically run for five or seven years. In the climate that existed a year or two ago, they could secure rates of 1.75 to 2.25 per cent. above the base rate, which is reasonably priced finance. It would be a simple measure to give them a holiday on the capital repayments with an extension of the term without penalty. For six months or a year, they would have only to pay the interest component, and the repayment period would be extended accordingly. It is a simple proposal, but it could put a lot of money into many businesses quite quickly.
We also need to address the rates and fees that the banks are charging. About the best rate available is 1.75 per cent. over base, but many small businesses face rates as high as 3 or 3.5 per cent. over base. We are now seeing considerable increases in those rates, as well as increases in fees. All those points could help small businesses, practically and quickly, with cash flow.
Then there is the issue of payment terms. The Government have committed to paying their bills more quickly, and that is welcome. I would like to see evidence that that is actually happening, because I cannot see a large bureaucracy that has a computerised monthly supplier payment system moving towards the 10-day payment of bills with any great ease. It is a good idea, but I would like to know how it will happen. Small businesses also need to be brought into the procurement chain. One of the problems that small businesses face is winning business in the first place.
As my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) said in his intervention, a major part of the problem is not Government-contracted payment, but private sector payment. I know of one plc that has just raised its payment terms unilaterally, by letter to all their suppliers, to 90 days end of month from 30 days end of month. That is seriously unhelpful. We are not in the business of legislating on the contractual terms between businesses, but the CBI could look at that issue. It might like to consider asking all of its member companies to agree to a code of conduct on payment, as that would be helpful.
We will, I hope, come through the present difficulties, and in the longer term we need to learn the lessons from it. In a way, the City has been a dutiful wife to the Conservative party for many years, but for the past few years it has had a passionate affair with the Government. I suspect that both the affair and the marriage are in deep difficulty.
We live in a period in which old-fashioned financial values have gone overboard. The City has gone from its useful and necessary purpose of providing capital to being the originator of a sort of debt market casino. Sub-prime may have been the spark that lit the fuse of the crisis, but the bomb was all the toxic debt. We need to return to a culture in which the masters of the universe are the servants of commerce. We have an opportunity to achieve that by restructuring and promoting enterprise and support for business.
My last point is on the burden of regulation. We need to examine the cumulative effect of regulation. If we look at any individual regulation, it is hard to say that it should be abolished, because regulations are full of good intentions to protect or help people. But the cumulative effect is to take considerable time from concentration on making the business productive. One idea would be to consider how many bodies have the right to inspect businesses, to see whether one or two inspections could do the job of the many to reduce the work load involved.
If today’s small business people feel much as I did in 1991, they are worried about being squeezed and about squeezing their cash flow to meet the payroll. They are looking to this House for support and help in the short term, and it is right that we should deliver that for them. In considering short-term help, we must also address the underlying causes and seek a long-term change in culture. We have to get away from the irresponsible bonus culture to one that rewards real enterprise and those who are building businesses. That will not be achieved through gimmicks, but through serious policies that we will undoubtedly address on another occasion.
Order. There is approximately one hour left for contributions from Back Benchers. Several Members clearly hope to catch my eye. I ask hon. Members, when making their speeches, to bear the time factor in mind so that more Members can be successful in making a contribution to the debate.
I shall heed your advice, Madam Deputy Speaker. I oppose the Opposition motion and support the Government amendment.
I think that it was the Prime Minister who said, “If everybody complains that I don’t smile much, that is because these are difficult times and smiling is probably not the right thing to do at the moment.” I agree with that. The situation for our business community is pressing, and for many Labour Members interacting with, understanding and listening to our business community are part of our core business as MPs, and so is getting those messages back to our Ministers.
Headline-grabbing announcements to try to deal with a difficult time are not the way forward. A hard, long slog is required, and that is what, over many years, the Government have put into supporting business and enterprise in the UK. Of course, the big prize was economic stability. When we are having discussions with the business community, they never argue with the fact that we have done a brilliant job on that front.
My constituency is in the south-east, in the heart of the Gatwick diamond and the heart of the south-east’s economy. The area is an enormous driver for business in the UK, and I firmly believe that before 1997, it was ignored and simply left alone to be in the forefront. It was always felt that it did not need help and support. That was utterly wrong. The first thing that we needed to do was to put in regional support, even in those regions that were incredibly successful. I support the Government in the introduction of the regional development agencies, which have been a great driver in moving forward.
At this time of global economic turmoil, nobody is immune, but there is plenty that we can do. Business, Government and Members of Parliament can come together to understand what business needs and to try to address the most pressing issues. Plenty of advice is available from Government agencies and organisations. Many of them were mentioned by my hon. Friend the Minister, so I shall not go into detail. We ought to pay tribute to many of the businesses in our communities that take the supply chain seriously and that value small businesses as a part of that supply chain, helping them to become more efficient and paying them decently.
I welcome the announcement that the public sector will pay decently for procurement, but business can do that, too. Thales in Crawley employs 2,500 people and has made a new investment of £100 million in the area. That company values its supply chain, meets those who form a part of it and talks with them about how best to proceed. Varian, a company that produces fantastic diagnostic and treatment linear accelerators, values its supply chain. It brings the members of that chain together once and year and awards are handed out. All those companies, in these difficult times, have protected themselves against waste and against being unable to face difficult circumstances. There are many such examples. BAA has a regular “Meet the buyer” event where people from large and small businesses can come together and understand what small businesses need.
The issue is not just about how we support business and that is why, listening to the debate so far, I have found it limiting. What matters is how we treat our communities and the places where we live, and how we deal with transport issues. Whenever we address our business communities, the one thing they want to talk about is how to make transport systems better and how they can best get into London more quickly. That is only possible when we invest in rail and when we ensure that such changes happen.
Small government cannot deliver the sort of investment that businesses need to do their job. I do not think that this is the time to start to talk about cutting investment in the public sector or in our communities. The heart of those communities will make our business communities successful, too.
Last Friday, I was at the Crawley and Gatwick chamber of commerce. I pay tribute to its president, Steve Rham, who brought together more than 100 small businesses to celebrate that organisation’s 70th birthday. I gave the keynote speech, which gave me the opportunity to speak to the people at each table. I learned that they want the Government to listen and to give them down-to-earth support. They want Ministers to make sure that there is enough runway capacity—and I know that Opposition Members have opposed the development at Heathrow. The people to whom I spoke are deeply worried about that, as they know that doing business overseas means that they must have access abroad. They do not support the Opposition’s stance on that matter.
The people I met on Friday want Ministers to listen to their concerns. They were delighted with the campaign led by Jeremy Taylor of the Crawley and District Industrial Association to retain the Gatwick Express. People need to be able to get into London as quickly as possible so that they can do their business and return to their firms in the south of England. That is how a Government can truly listen to business, and it is about more than simply producing headline-beating figures.
The other big issue that many people choose not to talk about is the provision of affordable housing for the work force. It is no good talking about providing businesses with what they need if the regional assembly opposes the Government’s figures for how much housing is needed in the south-east. We have to be able to house workers properly and decently, as they are the people who make businesses in the south-east operate. At present, for all that is said in Government, the people in the regional assemblies do the opposite, with the result that business is more difficult to operate.
We must fight that sort of opposition tooth and nail. We must support business, take action on banking and get transport right. We must make sure that there is enough runway capacity in the south-east, and that people have access to training and education. It is hard to believe that there are thoughts about getting rid of Train to Gain, which has so much support—both among those who undertake the training and among the employers who know the value of that training. Getting rid of Train to Gain would be reckless at a time like this.
The Government are getting on with the real work of supporting business, but we need more than just a quick fix. Ministers need to listen to Back Benchers and their ideas, and to bring forward proposals accordingly. We will get through this awful time if we support our businesses and our communities.
First, may I congratulate my party on bringing this vital debate forward? Hundreds of thousands of people involved in small business will pay attention to our words tonight.
They will hear some fine words in the debate but, as my grandmother used to say—and I have mentioned this to the House in a previous debate—fine words butter no parsnips. People outside the House are looking for action, and that is what we need to talk about.
I need hardly tell the House that people in the small business sector are very worried. They recognise that they are vulnerable because they do not have the financial depth of the big corporates, and they are concerned that they will have to handle the present economic difficulties for perhaps two or three years to come.
However, the people who run small businesses are not foolish, and they know that they present difficulties are not their fault. They know that their fight for survival was created, not by themselves, but by a corporate sector that forgot the basic rules that we all live by, and by a Government who encouraged that sector to do so. My grandmother could have told us that 125 per cent. mortgages were crazy, but Northern Rock seemed to want to live off the back of that foolish mechanism. My grandmother could have told us that the build-up of personal debt was crazy, but that was encouraged by our now Prime Minister, who used to be Chancellor.
My grandmother could also have told us that people cannot have what they cannot afford to pay for. She knew some very simple and basic concepts that people in the clever banking sector forgot about. They thought that they could beat the market in real terms by lending money to people who could not afford to pay it back, and that what they called derivatives would let them come out the other end of the deal in a successful way. We now know that that was crazy, but we also know that the present Government have contributed sizeably to the situation in which we find ourselves.
Other Members have gone through many of the issues, and I will not rehearse them. All the small and medium-sized businesses out there will say that this is not about the death of capitalism—we have heard a lot about that—but about poor financial sector dealings and a Government who refused to recognise that one cannot have what one cannot afford.
So how did this happen? I could talk about the deregulation of the Bank of England, the setting up of a regulatory agency that could not do the job, and the raid on private pension funds. I could talk about the growth of the numbers in public sector employment—600,000 since 1997, all having to be paid for by the wealth-producing sector—or about regulation, with an extra burden of £66 billion, all on the back of the wealth-producing sector. We all know that those burdens have been placed on the wealth-producing sector, and know where the truth lies. No wonder that the International Monetary Fund has intimated that among the western nations we are one of the worst prepared to deal with the present crisis. If that does not lie at the door of Government, I do not know what does.
Let me turn to how the banks are dealing with this. If the banks get it right, we are in with a chance, and the Government, because of the taxpayers’ money that they have put into the sector, are in a better position to ensure that the banks do get it right. However, I am fearful that that will not happen to anything like the degree that is necessary. Too many small business owners are asking their banks what contingency they might expect should they hit a bad debt and they find it takes longer to have their invoices paid or have a one-off hit on an otherwise profitable business. Sadly, the banks are responding by putting up interest rates on overdrafts, threatening to cut overdraft facilities and asking for personal guarantees, so that a partner in a small business has to go home to his partner and say, “We’ve got to put our house on the line.” She may well reply, “We’ve worked hard enough for this business—we’re not going to those lengths.” The Government need also to take those factors into account when they talk to banks.
Banks are no longer structured to help small businesses. In 1989, when I started a business that now employs 140 people, the bank manager was effectively in the cupboard and came out whenever I needed him. One cannot get those sorts of decisions at a local level any more, because they have to be shoved up the line to accountants who think they know better but, in truth, know nothing about the local sets of circumstances or the businesses they should be serving. Consequently, bad decisions are made. We need to ensure that the banks make quick decisions for small businesses. That means that those decisions are made by the branch concerned, not driven up the chain until they reach an accountant who knows very little about the situation.
The Government can be involved in several other areas, many of which have been set out by the Daily Mail. I want to relay to the Minister some of the messages that I have received from small and medium-sized businesses so that he might take note of them. I am not suggesting that all these measures are practical, but they might be worthy of consideration or amendment or represent ideas that can be put into effect relatively quickly and greatly help the small and medium-sized business sector. Those businesses are fighting for survival and need a response now, not in two weeks’ or two months’ time. They need to know what their contingency is now so that they can properly plan to get through the vital period that they face over the next six, 12 and 18 months.
I have spoken to people in small businesses, who tell me that they need consistency from the banks. There is inconsistency between banks and between regions, and small businesses are getting different responses from different banks and different regions, depending on who they deal with and where they live. Surely banks ought to be much more consistent. Given that it is viable, people with a small business ought to know what they can expect when they go to talk to their bank.
May I tell the Minister that only three banks can access much of the EU funding for business? We should encourage all banks to register for the scheme. They are not doing so, and the Minister might consider that.
Does the hon. Gentleman share my concern about the lack of flow-through of the European Investment Bank funding and the fact that the Government seem to be interfering in the process, which is holding it up? I do not know of a single company that has received any money yet.
That is true. Bureaucracy gets in the way of much funding that could otherwise flow more quickly. I ask the Minister to consider that fact, too. Furthermore, banks are not complying with what the Government are saying about negotiation fees, which are increasing, not decreasing.
Will the Government examine the scope for cutting fuel duty? We have spoken about it many times in the House, but there is now an opportunity to do so and I hope the Government might take that on board. Will the Government look at the rates charged on empty properties that builders cannot sell? A number of local authorities are charging rates on new builds that have not been sold and there will be more of those. Will the Government review VAT on repairs on property? ECOFIN proposes that it should come down from 17.5 per cent. to 5 per cent., which would be a great help for the small building sector and enable it to get on with the repair of our housing stock.
The Minister might like to think about spreading business loss over three years for tax purposes, rather than looking at the situation for one year. I have many more ideas, and I shall write to the Minister to add those to the list that I have given. Small and medium-sized businesses are, and will be, fighting for survival over the coming months. Our duty in the House is to do all we can to support them through this difficult period because they provide jobs, growth and, more importantly, creativity in British industry. We must ensure that that lives and is around in two or three years’ time.
If the small business community is not depressed enough by the current economic situation, it will be even more depressed by the speech of the hon. Member for Rutland and Melton (Alan Duncan) from the Opposition Front Bench. The speech was short on solutions and long on omissions.
The Opposition omitted to mention who was adviser to the then Chancellor at the time that we were dumped out of the exchange rate mechanism, with all the consequences of doubling unemployment and huge numbers of small businesses in my constituency going bust as a result. The Opposition omitted to mention that they got it wrong on Northern Rock and almost every other financial measure that we have introduced to ensure financial stability for businesses large and small. They omitted to mention that they advocated cutting Train to Gain which, as we heard, is enormously successful and will be extremely important to sustain our small businesses. They omitted to mention that they voted against the small business rate relief, yet are now campaigning as though they had supported it—long on spin, short on substance.
The measures that our Government have produced are practical, workable and swift in their implementation. I declare an interest. I was the first fellow of the Industry and Parliament Trust to undertake a small business fellowship. That has helped inform me about the incredible value of small businesses, certainly within my constituency. The energy, innovation and employment that they contribute to our economy are vital. I am also chair of the all-party group on social enterprise, and I want to ensure that in this debate we do not underestimate the importance of social enterprise in providing a triple-bottom-line value, which, although the sector is small, reflects where we need to go in terms of business confidence.
My constituency is generally seen as an area of bigger business. Vauxhall had plants there, although they are sadly long gone. I welcome the Opposition’s apparent new-found support for regional development agencies; without them and European funding, thousands of my constituents would have lost their jobs and not been able to gain jobs swiftly. I sincerely hope that we will not need similar support for IBC Vehicles Ltd, which is seeing more down days. We need to ensure that our regional development agencies are on their toes so that they can support small businesses as quickly as possible and that all the mechanisms to allow them to do that are in place.
We have heard a lot of sensible and practical solutions from the Government; I do not want to repeat ones that have already been mentioned. We need to ensure that all public bodies—and I mean all: local authorities, registered social landlords and so on—conform to the Government’s suggested payment timetables. We need to encourage large companies to follow that lead as well. They should genuinely partner with small companies and protect their supply chains; we have heard how important that is. I commend London Luton airport, which recently held an event to encourage local supply chains and work with them more productively.
The Government must look at their procurement and tendering processes in relation to small businesses and social enterprise; frankly, they are not good enough. If we are to ensure the lifeblood of small businesses, getting the contracts through quickly and in a streamlined way will be critical.
Given that we face a credit crunch, this plea may sound a bit bizarre, but I also want the Government to support small business so that it can maintain and not lose sight of its corporate social responsibility agenda. We talk about CSR in the context of big business; actually, we need to ensure that small businesses are part of the game and to recognise that there is a valuable bottom line for them if they get involved in CSR.
At this sort of time, it seems that that should be the last thing that we should suggest. I think, however, that the converse is the case. During the global economic crunch, people are losing trust in financial institutions and businesses, and they need to see trust and responsibility restored—with customers and suppliers and between businesses. In this new economic era, people need to see that businesses and financial institutions can be responsible and that we can have confidence in them being there for us in the long term. In that way, responsible businesses will have confidence in their products and services, in buying and selling and in controls to reduce risk and maximise opportunity. They will then be focused on long-term success—economic, social and environmental—not on the short-term, get-rich-quick projects that got us into this mess in the first place.
People are looking for such businesses and we need to support our small business sector so that they get them. [Interruption.] Some Members are looking askance at me, as if what I am saying is totally irrelevant. I say to them that there is evidence to support my theory. Business in the Community has done research that shows that involvement in corporate social responsibility improves bottom-line financial performance. There is too little evidence in respect of small and medium-sized enterprises, but there is evidence of a real return on investment. Indeed, today, I had a meeting with a company called Commercial, which provides print, stationery and office equipment. It has taken that approach on the environment.
I am sorry, I have not got time.
That company managed to reduce its waste costs by 80 per cent. over the last three years. It is now aiming for zero landfill, which will take a huge cost out of its bottom line. It is evangelical about it, and it is partnering other small businesses to give them similar benefits. That is the sort of model we should be aiming for, and that is the message that Government need to get across to small business. We need to support and co-ordinate small businesses so that they can see that there are environmental and economic benefits from that kind of activity, which will pay off in the short, medium and long term.
The Government need to look further at support for social enterprise. Who lives and breathes the creation of profit and of employment and enterprise? It is social enterprises. If we are concerned, as we must be, about small businesses laying off staff, with all the implications that has for unemployment, who are the least likely to lay off staff? It is social enterprises. Their focus on the triple bottom line means that they will support those retaining people in employment, and many of them are all about the creation of more employment and help for those who are unemployed.
Returning to the evidence base for what I am saying, Business in the Community has done research that shows that small companies that manage their environmental and social impact in a more efficient way are better able to cope with future economic challenges. It found that, in a declining market, the companies it measured which were involved in corporate social responsibility were outperforming their counterparts by 3.7 per cent. between June 2001 and June 2004, and that a further group were outperforming their peers by 72 per cent. in the same period. Those businesses found such involvement had a practical, bottom-line impact.
The evidence from the Social Enterprise Coalition is that social enterprise lenders provide better liquidity where it is most needed and, in many instances, they have increased their lending to those that need it most—look at community finance development institutions and credit unions. They are resilient businesses, delivering the jobs, skills and services most needed in times of economic crisis in communities. Their reservoir of skills and local expertise is an asset for recovering regional economies that should not be wasted at this time. We must not lose their experience in building in that triple-bottom-line benefit, including the social and environmental experience that they bring.
There are opportunities for us to think anew about the new kind of business that people want—responsible and not fly-by-night. We need to help to bolster such new businesses, to build support with business, consumers and customers. By providing greater support to small businesses within the CSR agenda, and providing greater support to social enterprise, we could see a new vision of the kind of small business that we want. Those businesses will have the energy and initiative to bring wider benefits to the local and national economy.
I am pleased to follow someone else who is in the east of England, but I was amazed at her complacency about some of the things that have affected the east of England. I am no great fan of development agencies or regional assemblies. It is interesting, however, to note that those are the Government’s delivery vehicles for grants. We cannot ignore the fact that the Government have decided to take away a substantial amount of money from the grants directly affecting businesses, and have used it to prop up the housing market. Only in August, we were told by the then Exchequer Secretary to the Treasury:
“The East of England is being affected by global uncertainty…so here in the East of England we are determined the government along with regional and local agencies such as EEDA will all work together to ensure that businesses get the support they need.”
The Minister for the East of England said:
“In these difficult times we must keep calm and continue to work to our strengths. I am confident that the region’s innovative businesses, which are investing so heavily in the skills of their staff, have the right approach. But, more can always be done,”
which is why we will be
“working with the business community to make sure that everyone is equipped to meet the challenges”.
That was in August. In October the Government did a big U-turn, pinching a large amount of money— £300 million—from those very businesses, and believe me, Madam Deputy Speaker, they think that that is a problem. As David Kingham, the managing director of Oxford Innovation, one of the country’s leading providers of managed work spaces, puts it:
“We have a problem in banking, clearly, and an impact in the housing market. But the last thing we want is the cost of that to start to damage small business investment.”
Unfortunately, it already has.
No, I shall not give way, because other hon. Members have waited a long time to speak.
Walter Herriott, Mr. Kingham’s counterpart, said that he had lost public funding from the East of England Development Agency for the first time in 15 years.
“Within the last week, because of…funding of first-time buyers, we have been squeezed by the testicles,”
he said, obviously finding the experience a very painful one.
Needless to say, when the Select Committee on Communities and Local Government looked into the auditing of how things were going in the east of England, I asked the question. I said that small businesses might be finding it difficult. I said that there had been some criticisms from small businesses locally, which have said that money has been taken away from business development through the RDA to prop up the housing market. I asked how that could be justified. What research had been done into the impact on struggling small businesses?
A Mr. McCarthy, an official, said to us:
“ministers took that decision very carefully and with some degree of reluctance. It was a decision taken in consultation with the Prime Minister and with John Hutton as well as by ministers in our Department; it was not a unilateral decision.”
He went on to say:
“Therefore a conscious decision was taken to fund an initiative”
to prop up the housing market—my words, not his—
“because that money is all about buying their completed stock as well as helping first time buyers who cannot access a home at the moment. I think that despite it being difficult and painful for ministers, it does something which helps industry and helps first time buyers now.”
But the pain and the difficulty is being felt by small businesses.
I asked the Minister in an earlier intervention what he thought about that, but all he said was, “Oh, I’m glad to see that you’re all supporting RDAs now,” focusing his attention always on the delivery vehicle, not on the grants that are being stolen. The Government have decided to put money towards house building, investing in propping up the housing market, at the expense of small businesses.
I am extremely grateful to the hon. Lady. Does she appreciate that putting money into the housing market is one of the best possible ways of supporting electricians, tilers, plumbers, joiners, roofers, handymen, carpet layers and all the other small businesses that go with housing?
I am very sorry that I took that intervention. The fact that the Government are going ahead with hundreds of thousands of extra houses that are under dispute in our area is more about saving their house building programme.
It cannot possibly be right that small businesses should be used as the whipping boy. They have put up with an awful lot of economic pressures already. They have been regulated to death and now, in their hour of need, they are unfortunately being seen as a ready pot of investment that can be taken away. What is more, the Government are being so quiet about all this. It seems that no matter whom I ask, they all say, “Oh, we’re all in favour of regional assemblies and RDAs now, are we?” That is not what we are talking about; that is the delivery mechanism.
I look forward to seeing the Secretary of State come back tonight and tell us whether he has made any calculations of the impact that taking away that future investment will have on small businesses that were looking to receive it from the Government. As far as I know, there have been no such calculations. I have been told nothing other than that the decision was a difficult one. I would love to know what information informed it.
Before I retrace our steps to see how we got into the international credit crunch, I should like to say something more positive. This is a debate of genuine concern for small businesses, and for the enterprise sector generally, but I have not heard a lot from the Opposition about how we can talk the economy up instead of talking it down. For example, the national chairman of the Federation of Small Businesses came to Liverpool recently to host a lunch in that magnificent city. It was the first visit to the city by the national chairman of the federation. He gave the very positive message about the enterprising benefit that the federation was gaining from the city being the capital of culture. As hon. Members will know, Liverpool is the European capital of culture this year. He said that he wanted to look forward to what Liverpool and the sub-region of Merseyside could do, not only this year but in the future. He wanted to build in to the region not only the fantastic year that we are having with the capital of culture but the benefits that will survive beyond this year and go forward.
The Federation of Small Businesses was amazed, having done some thinking outside the box—to use a rather ugly phrase—to have become so involved with the creative industries, as it had not really thought of doing so. Liverpool has long been well known for its creative industries. The message was that, yes, this is undoubtedly a difficult climate, but if they think positively, there are ways for small and medium-sized enterprises upwards to build confidence. Rather than talking down the region, we need to talk it up.
I should add, in parenthesis, that the Tories’ favourite think-tank—from which I understand many of their as yet unspoken policies might yet emerge—produced a report during the recess that recommended that people who lived in Merseyside and Liverpool should forget the area and move to the south-east. That appeared to be the apotheosis of Tory policy. Other hon. Members have noted the apparent change in Tory policy—I do not know whether that is what we are witnessing—and their new interest in regional development associations. Labour Members will certainly not ignore the regions, however, as some of my hon. Friends have already said.
I want to retrace our steps in regard to the analysis of the credit crunch. I have put it to the hon. Member for Tatton (Mr. Osborne) that he had previously admitted that the tsunami of the credit crunch and the toxic sub-prime mortgages could not have been foreseen. That is certainly the case, and it is the reason why we are now in the middle of this global crisis, so it is completely disingenuous of the Opposition to keep talking down the situation and trying to blame these foreign circumstances on my right hon. Friend the Prime Minister. If people think that I am wrong about that, perhaps I may pray in aid Mr. David Smith, the economics editor of The Sunday Times. He describes the Tory claim—which I do not have time fully to reiterate—that everything lies at the door of my right hon. Friend as just plain “daft”—[Interruption.] The hon. Member for Northampton, South (Mr. Binley) says that he has not made such a claim, but those on his Front Bench have done so. They repeated that calumny tonight.
What David Smith goes on to say is that we have to recognise that the normal tools of central banking are sometimes not adequate for the crisis that comes along—a crisis that the hon. Member for Tatton said could not have been foreseen. He goes on to explain that what we have experienced is an extreme version of market behaviour built around derivatives and toxic financial products, with which we are now stuck.
It was impressive that the Government were determined to take action quickly, but is not one of the problems that they have not dealt with those toxic assets on bank balance sheets? It would have been better if they had arranged more debt with the banks in order to remove the toxic debts from their balance sheets and repair their wounds.
The hon. Gentleman is absolutely wrong. The Americans tried that, raising $700 billion with the idea of buying toxic debt, but it simply did not work. The markets hated it and Wall street crashed on the back of that wrong action; the right way of doing it is what my right hon. Friend the Prime Minister suggested—recapitalising the banks and putting liquidity back into the system. The hon. Gentleman is, as I said, absolutely wrong. I am glad that we did not take his advice and I am glad that we ignored the advice of other Conservative Members on a number of issues such as Northern Rock and Bradford & Bingley. Had we taken it, we would have done a Lehman’s and the problem would have been even worse.
Conservative Members argued earlier that we cannot afford to borrow or to use good old-fashioned Keynesian economics to help the economy through these hard times. Well, Maurice Fitzpatrick of Grant Thornton points out that Britain’s public debt position, which is better than any other G7 country, gives us a big advantage. Even a UK debt figure of between 40 per cent. and 50 per cent. of gross domestic product is half the G7 average of 93 per cent.; America is on 61 per cent., Germany on 63 per cent.; France on 64 per cent., Canada on 68 per cent., Italy on 104 per cent., and Japan on 195 per cent. We are in as good a place as any to be able to afford the borrowing that my right hon. Friend the Prime Minister has put in place.
As for us having a big public deficit—[Interruption.] I would be grateful if the hon. Member for St. Albans (Anne Main) did me the courtesy of listening to what I am saying. These are serious matters, but she is grinning all over her face—[Interruption.]
Thank you, Madam Deputy Speaker.
As for the so-called budget deficit, John Hawksworth of PricewaterhouseCoopers noted that
“partial nationalisations (taxpayer stakes in banks)… do not add to public-sector net borrowing… They are… below-the-line financial transactions”,
which means that they do not put pressure on the Chancellor to raise taxes or cut spending. As the Government have made clear, we are not going to cut spending.
In conclusion, on the micro-way of supporting small businesses, I welcome what my hon. Friend the Minister said earlier in opening for the Government. We will not talk down the economy; we look forward to the measures that the central Government have suggested to their suppliers to pay within 10 days; we look forward to the increased support for Train to Gain; and we welcome further initiatives on local Business Links. I agree with what my noble Friend the new Business Secretary said:
“We understand that small and medium sized businesses are facing tough times as a result of the global economic squeeze… The Government has taken steps to ensure that banks are properly capitalised and can start lending again”.
I look forward to moving forward positively with the banks starting to lend again so that small businesses can once again have confidence in the banking system.
I was referring to the general public in the rounder use of the word “you”.
The general public would not believe, if they had tuned into the parliamentary channel for the first time, that the Government had been in power for 11 years. We have had 11 years of Labour misrule. For the first 10 years, the Chancellor, now the Prime Minister, told us all that he had abolished boom and bust, and that the economic miracle being experienced by the UK was entirely down to his stewardship—that it was nothing to do with a strong global economy, and that it was down to his guidance and supervision. He is a bit like Macavity—as soon as things go wrong, as was bound to happen after his spending splurge and 10 years of debt-fuelled extravagance at the taxpayer’s expense, he says, “It’s not my fault, guv. It’s nothing to do with me. I’m totally misunderstood. It’s all to do with these horrible Americans and the sub-prime debt market.”
The hon. Member for Wirral, West (Stephen Hesford) said that the sub-prime collapse could not have been forecasted. But as my right hon. Friend the Member for Wokingham (Mr. Redwood) has said—
I am sorry. I am unable to give way to the hon. Member for Wirral, West. He forgets that Bradford & Bingley and Northern Rock were lending not in the United States of America, but in the United Kingdom. They were advancing people mortgages of five or six times their annual earnings. They were allowing self-certification, and lending money to people who had no hope of paying it back. They have caused human misery on an enormous scale.
Today, 80,000 homes are under order of repossession. What will the figure be in 2010, when it is estimated that house prices will have fallen by 35 per cent. from their peak? The Government should at least say sorry to the hundreds of thousands if not millions of people whom their policies will drive out of work. Their policies will cause significant unemployment over the next three or four years.
It is all very well to talk about history lessons, about 1997 and 1979, but those years are exactly that—history. This is the here and now. The problems have happened under this Government’s watch. The Prime Minister must face up to the fact that he has driven this country to the edge of financial crisis. A lot of very good businesses will pay the price of his mismanagement.
Let us remind ourselves of the figures. The banks are being underwritten by £500 billion of taxpayer’s money. That is an astronomical figure—half a trillion pounds. The Government only manage to spend £650 billion a year, so nearly 80 per cent. of that, which they raise from the taxpayer and the debt markets, now underpins our banking system. If that is not a financial disaster, I do not know what is.
I also point out to the hon. Member for Wirral, West and the hon. Member for Brent, North (Barry Gardiner)—before the last reshuffle he was the forestry ambassador, not that it was a ministerial position—that the £500 billion must be paid back at some time in the future. Guess who will be paying it back—the taxpayer, for generations to come. That will not be easily forgotten.
The hon. Gentleman talks of the very large size of the £500 billion bail-out. In the light of that, is it not appropriate to ask whether the money was well spent? Reference was made earlier to whether the use of debt and the removal of toxic assets from bank balance sheets constituted a better approach than recapitalisation through equity. After all, it is the innovative and very successful scheme recently established by the Swiss National Bank that allows the removal of those toxic assets, improving the quality of the bank and removing the Government from the embarrassment of constantly being asked—bearing in mind that they are a majority shareholder—what they will do about the minutiae of the management of those banks. Surely that would have been a better way to spend such substantial amounts.
My hon. Friend makes a good point, but the Government are asking us to take everything on trust. How can we trust a Government who have taken the country to the edge of financial ruin? No trust is left.
The hon. Member for Luton, South (Margaret Moran), who is no longer in the Chamber, talked of corporate social responsibility. I do not think she understands that the most responsible thing that small businesses can do now is try to retain their work forces—try to retain people in jobs so that they can put food on their tables. This is the level of the crisis facing small businesses.
I see the Minister of State making a few sedentary interventions. He really is living in cloud cuckoo land if he thinks that banks will lend at 2007 rates. Small businesses are having their loans renegotiated by banks at rates of upwards of 15 per cent. They are seeing their interest rates trebled, and that is pushing very good and viable businesses to the wall at this moment.
I am sorry; I do not have time to give way to the hon. Gentleman.
I really believe that, after 11 years, the Government probably—or definitely— should have done a better job on the economy. For the last 11 years the Chancellor, now the Prime Minister, has said, “Trust me: I know what I am doing.” Well, clearly he has not had a clue. He has been making it up as he goes along.
The four Labour Members who spoke this evening will all lose their seats at the next general election. They will pay the price for the Prime Minister’s failure, and ultimately he will have to explain himself to them when they are looking for new jobs.
This has been a short but timely debate. I know that it is of great concern to the millions of small businesses in our constituencies, and I am sure that many of them will have followed what has been said. I know that those in my constituency are keen to find out not only what we plan but what the Government’s response will be, so I look forward to the Minister’s reply.
The debate began with an excellent exposition from my hon. Friend the Member for Rutland and Melton (Alan Duncan). With his usual historical and indeed oratorical insight, he rightly exposed the way in which the Government’s policies have directly weakened the nation’s finances. In responding, the Minister mentioned a number of initiatives that the Government had taken— although, on closer examination, I could not see any new money included over and above the current Government spending plans. While I believe that the Minister is a decent man, I was slightly saddened that, like other Ministers, he could not bring himself to accept that the Government had even a scintilla of responsibility for the events of recent months.
The hon. Member for Caithness, Sutherland and Easter Ross (John Thurso), the Liberal Democrat spokesman, spoke with his usual charm, but also contributed some useful insights, not least because—like a number of those who have spoken—he has had experience of real businesses. I welcome his party’s support for our motion, although I understand that he may have a few caveats along the way.
My hon. Friend the Member for Northampton, South (Mr. Binley) brought his usual energy and insight to the debate—again, born of someone who has actually been involved in starting and running a business. He knows and understands what is actually involved.
We then had a number of varying contributions from Labour Members—from the hon. Members for Wirral, West (Stephen Hesford), for Luton, South (Margaret Moran) and for Crawley (Laura Moffatt). My worry is that I did not hear from a single Labour Back Bencher any mention of how the overdrafts and pressures on small businesses today are affecting their constituents. I hope that that was an oversight on their part. I am sure that their constituents hope that as well.
I turn lastly to my two neighbours in Hertfordshire. My hon. Friend the Member for St. Albans (Anne Main) rightly expressed her anger at the way in which the Government offer money to businesses and then quickly take it away. One cannot plan a small business if there is that constant merry-go-round of Government funds. That was a perfectly reasonable criticism which I hope the Minister will take on board.
Last but by no means least, we had the enthusiastic and energetic contribution from my good neighbour the hon. Member for Broxbourne (Mr. Walker). He was right to be angry and passionate about the issue. The frustration that many of our constituents feel is that, while Ministers try to pass the buck, the people who in the end will pay the price for the current problems are the taxpayers. We will pay for the Government’s mistakes.
For much of the past 16 years, the global economy has been growing. Here in the UK, it has been a boom that has lasted through two Governments and three Prime Ministers. Yet in the past decade we have seen this golden opportunity squandered, as the current Government have taxed and borrowed without ever preparing for the future. They have taken us from boom to bust. Thus, despite soaring tax revenues, as the IMF has noted, the national debt has climbed inexorably. Even before the downturn bites on Government revenues, we have a higher budget deficit than almost any other major country, unless of course one counts Pakistan, Egypt and Hungary.
Part of the problem has been the arrogance of a Chancellor, now Prime Minister, who believed that he had for ever ended the cycle of boom and bust. Indeed, in 1997, he promised that under his stewardship, our economy would
“be built not on the shifting sands of boom and bust, but on the bedrock of prudent and wise economic management for the long term.”
How hollow that boast must sound to the thousands of families in our constituencies whose homes are about to be repossessed.
Our economic performance has been slipping behind that of our competitors. Our productivity lags behind most G8 nations and the rising tax burden is pushing good firms abroad. According to the World Economic Forum, we have fallen from fourth to 12th in its key measure of international competitiveness. British business is doing its best, but all too often that is in spite of the Government, not because of it. Thus, since 1997, there have been over 100 stealth tax rises, which by 2010—an interesting date that is clearly in the minds of the Government—will have cost business £80 billion.
The tax system itself now has become a burden for businesses large and small. According to one of the leading independent surveys in the last year, the average small company now spends 50 hours every year just complying with the tax regulations, never mind the rest. It is this toxic combination of tax and red tape that has been strangling enterprise, despite all the promises and ministerial photo opportunities.
The Prime Minister, of course, likes to boast—the Minister repeated it today—that there are more small companies today than there were in 1997. Indeed, the numbers have grown, but at a slower rate than the increase in population. So for all the talk of an entrepreneurial culture, the net result is that today fewer of us are starting up a new business. It is just as concerning that fewer small businesses today employ people than was the case 10 years ago. Indeed by last year, seven out of 10 small firms no longer employed anybody. What a wasted opportunity.
Before I came into politics, I ran my own business for 10 years. I passionately believe in the importance of small and medium firms in our economy. It is they who generate £1,400 billion of our national wealth, and even now, despite the burden of this Government, they still employ more than 12 million people. I and my Conservative colleagues never forget that it is not the Government who create wealth and private sector jobs; it is the private and small businesses who create the wealth and the jobs on which the rest of us rely. That is why I have followed the events of recent months with a sense of foreboding, for as we have all watched the stock market screens turn red, I knew it would be the hard-working business owners and their staff who would pay.
We need to act fast to help these firms. The best start would be if the Government were to scrap their planned tax rises for small businesses. What is the economic logic of increasing small company corporation tax by more than £370 million in this of all years? The tax hike should be reversed, and if the Government do not do it, we will.
To be fair, it is true that over the past week or so we started to hear more positive noises from Ministers. They are right to highlight the importance of tackling late payment by central Government. Indeed, I am glad that Ministers are now following my party leader’s call to ensure that all levels of government—national, regional and local—pay due invoices within 20 days.
However, today’s announcement by the Government on staff training is not so promising. When we look closely, there is no new money and, indeed, most of the elements of the scheme involve things that already exist, so what at first appeared to be a good idea turns out to be just spin. The problem with the Government at present is that with their new boss, Lord Mandelson, at the Department for Business, Enterprise and Regulatory Reform—and it is a pity he is not able to be present—we have spin rather than substance. As there is no new money and this scheme largely contains measures that already exist, I invite the Minister to intervene and tell us how much additional money on top of his current spending plans he intends to put in.
I would love to be standing on the other side of the Dispatch Box and be able to answer, as a Minister, the Opposition’s questions, but let us be clear: we will use the money that is put into training to most effect. That is why, for example, we will use some of it to give £2,000 to every small business, so that they can use that money properly.
I invite the Minister to intervene again, and let me ask him a simple question. Is the £350 million that his Secretary of State has talked about today new money or not? Does he not wish to answer? I think the House will note the silence of the Minister on the question of any new money.
I do not know about new money, but £37 billion sounds like a lot to me. The Opposition motion to which the hon. Gentleman is speaking tonight contains two measures—although I must say that I do not think they are sufficient. Can he tell us what those two measures will cost?
I will tell the hon. Gentleman exactly that in a moment, because when I turn the page of my speech I will get into the details, and as he knows I like to make sure the details are right. I am happy to do that, therefore, but I am sure that the House has noted that there was no offer, even from the Labour Back Benches, of new money.
It is the noble Lord Mandelson’s birthday, so we should at least send him some greetings. The new Secretary of State for Business, Enterprise and Regulatory Reform was reported as having said yesterday that he had plans to delay a number of laws on flexible working, banking holidays and, indeed, paid maternity leave. Yet within hours the Chief Secretary to the Treasury said that that was not the case, and that the Government would not do anything to hurt decent working people. Indeed, the TUC went further, saying the reported plans were “astonishingly irrelevant”.
Who is right? What can small firms expect from the Government? We would love to ask the Secretary of State for Business, Enterprise and Regulatory Reform, but we cannot do so as he cannot be here because he sits in the other place, so perhaps the Minister can help. Is his Department reviewing the laws, and when does he expect to implement them? Who counts more in this debate, the Secretary of State or the Labour party’s paymasters?
To answer the hon. Member for Wolverhampton, South-West (Rob Marris), our motion sets out the urgent need for positive action. I shall run through the actions that we propose. First, we will allow small and medium-sized enterprises to defer their VAT bills for up to six months. For a typical business with a VAT bill of a third of a million pounds, that could free up £90,000, which could be the difference between survival and failure for some businesses. As a jeweller in my constituency pointed out to me, they do not seek special treatment, they just want a little flexibility and a little understanding.
Secondly, we would cut payroll taxes for the smallest employers, to help them save money and so keep jobs. That would mean that a local firm with, say, four employees and a wage bill of £150,000 would save £100 each and every month. Thirdly, we will help small businesses, especially shops, to claim their small business rate relief. Just half of the firms that are eligible currently claim that relief, and we want to help them. That is why we will provide a new way for them to make their claims directly.
Another matter that has been mentioned is banking, which is crucial to small firms. The way in which small businesses are being dealt with by their banks is of great concern. We heard from my hon. Friend the Member for Northampton, South about how some long-established firms are finding their overdrafts being called in without warning, and from the hon. Member for Caithness, Sutherland and Easter Ross about how the rates on those overdrafts have suddenly increased significantly. It is not because those firms have become a riskier prospect; it is simply a direct result of the credit crunch.
In recent days, Ministers have said that unreasonable actions by the banks against mortgage holders will not be tolerated, but what about small businesses? What can they expect from the Government? I hope that the Minister will be able to tell us exactly what the Government regard as unreasonable action by the banks. After all, as a shareholder, or at least a putative shareholder, in some of the major high street names, the Government will no longer be able to walk on by. I would say to the banks that they need to think carefully about how they treat their customers. After all, we as taxpayers have bailed out the banking system. Pulling the rug from under good firms’ feet would be neither wise nor acceptable.
Businesses in this country face a severe challenge, and for some it may prove fatal. We will return in time to the fundamental question of why, after 16 continuous years of growth, the nation’s finances are so poor. At this moment, however, the priority is to reach out and help the millions of small businesses that are the backbone of our economy. My party has set out a positive plan for action, and just as Ministers have helped the banking system, so the Conservatives stand by small businesses. They need help to manage their cash flow; we will provide it. They need supportive banking; we will enable the Government to achieve that. They need help to cut their costs. We believe that our plans could make a real difference to millions of firms and their staff. I urge the Government to adopt our ideas—as their own, if they wish—and to work with us to help our businesses survive and prosper in the coming months.
I agree with the hon. Member for Hertford and Stortford (Mr. Prisk) to the extent that the priority for the House and the Government must be to concentrate on what we need to do to help small businesses through the difficult economic climate that we now face.
This has been an important, interesting and useful debate, and it has highlighted the regard in which small businesses are held—to be fair, Members of all parties have demonstrated that—and the remarkable contribution of innovation, creativity and competitive challenge that small businesses bring to our economy. The debate has allowed the Government to highlight our continuing sense of responsibility to assist small businesses in navigating the difficult economic times that we are entering.
If I may, I wish to take this opportunity to salute the contribution to that agenda of my immediate predecessor. Lord Jones is a great ambassador for business in the UK, and if at times he is occasionally controversial, he is also a real enthusiast. I cannot promise a similar style, but all of us in the Department for Business, Enterprise and Regulatory Reform will be just as passionate for British business as he was. Indeed, I relish the chance to champion the imagination, dynamism and ability of our business people. I should say that Lord Jones has agreed to be one of 14 business ambassadors who will help the Prime Minister and the Secretary of State for Business, Enterprise and Regulatory Reform to promote British business overseas—I will also be involved. I welcome all their commitment and contribution to this agenda.
My hon. Friend the Member for Luton, South (Margaret Moran) rightly reminded us that when we think about small businesses, we need also to consider in our analysis the contribution that social enterprises can make to the economy and their specific needs in the economic circumstances that we face. We will indeed do that. I join the right hon. Member for Rutland—[Interruption.] Okay, just the hon. Member for Rutland and Melton (Alan Duncan)—I apologise for exaggerating his importance. I join him in welcoming the campaigns by both The Sun and the Daily Mail to champion the needs of small business. I shall discuss some of the specific comments that they have made in due course.
As the Minister of State, Department for Business, Enterprise and Regulatory Reform, my hon. Friend the Member for Wolverhampton, South-East (Mr. McFadden), rightly noted, outside organisations, not least one as significant as the World Bank, have said that Britain is still among the best places in the world to do business—it is second in Europe and sixth in the world. Of course, we cannot relax about that business environment. We know that many small businesses are facing considerable difficulties and will face more difficulties over the current period, so there will be much more for the Government to do in the months to come.
The hon. Members for Caithness, Sutherland and Easter Ross (John Thurso) and for Northampton, South (Mr. Binley), my hon. Friend the Member for Crawley (Laura Moffatt) and one or two others noted the issue that small businesses have raised most urgently with, I suspect, both sides of the House—access to finance. As the Minister noted, small businesses need to be able to borrow to invest and to keep their companies moving. That is one of the reasons why we will monitor the commitments made on the availability of finance to small and medium-sized enterprises by Britain’s biggest banks. It is also one of the reasons why my right hon. Friends the Prime Minister and the Chancellor have put so much time into working to ensure that Britain’s biggest banks can continue to lend money.
Before I give way to hon. Gentleman, may I pick up the specific concern raised by the hon. Member for Solihull (Lorely Burt) in an intervention on him? It dealt with the question of whether the Government were in some way holding up Britain’s biggest banks’ access to the European Investment Bank’s funding. Let me make it clear to both hon. Members and to the House that we are certainly not seeking to delay the banks’ access to that funding. The four largest UK banks have signalled their interest in taking up to £1 billion from the EIB to help small firms. We are engaged in close dialogue with the EIB in order to satisfy it on points concerning risk sharing with the banks. We are also working to facilitate access for smaller banks to EIB funding.
As I have previously alluded to, as the Minister of State made clear and as my right hon. Friend the Secretary of State made clear in his appearance before the Select Committee this morning, further meetings with the banks will take place later this week to make sure that they are thinking through, and delivering on, their commitment to continue to lend to small businesses at a level commensurate with what they lent in 2007.
The Minister said that he would monitor the reaction of banks to requests from small businesses for overdrafts, contingency funds and other loans. Will he do more than that and, as a major shareholder, intervene where there is a real need? Will he do that quickly, because the reaction is not as he believes it to be at the moment?
As I have already said, we are actively talking to the banks about how to ensure that they deliver on the commitment that they have made. I understand the profound concerns of many small businesses about access to lending and whether the banks will genuinely deliver on the commitment that they have made to the Government to continue to lend at a rate commensurate with 2007. That is one of the reasons why the Secretary of State and the Chancellor of the Exchequer will continue to meet the banks. Indeed, they are meeting them later this week. I recognise that the House is also concerned to ensure that monitoring takes place, so I hope that all hon. Members will welcome that continuing direct dialogue with the banks.
We receive all sorts of correspondence from Members of Parliament representing the concerns raised with them in their constituencies. If hon. Members are approached by small businesses that face real difficulties, we will look into that and see what can be done to help. I hope that the hon. Gentleman will recognise that the prime responsibility to ensure genuine access to finance lies with the banks. They have some work to do to convince the small business community that they will follow through on their commitments. I hope that the House will recognise that we are continuing to monitor the banks’ commitments closely.
At a time when base rates are coming down, many small businesses find that their effective rate of borrowing, including arrangement fees, is double what it was last year, with many paying 15 per cent. Will the Minister send a clear signal to the banks tonight that that is unacceptable if the business fundamentals are the same as last year?
My right hon. Friend the Chancellor has made it clear on many occasions that we recognise the considerable concern among the small business community and more generally about rates of lending and the price of that lending. That is why we are continuing to have an active dialogue with the banks, which continues on an almost daily basis. As I have said, the Secretary of State and the Chancellor will meet the banks later this week.
We can take other action to help business gain access to finance. We have already allocated an extra £60 million for the small firms loan guarantee scheme—a 20 per cent. increase—taking the total available to some £360 million, so that in more difficult months to come the scheme will have the resources to help many more firms.
Many hon. Members noted the need for prompt payment of business invoices because of the sometimes huge difficulties that late payment can generate for small businesses. I hope that hon. Members will welcome the commitment by the Government to paying their bills within 10 days. As my hon. Friend the Minister made clear, that will bring forward some £8 billion in payments, on top of the £58 billion already paid within this period. Hon. Members will note that regional development agencies have also signed up to that target, as has the chief executive of the national health service, who has written to all NHS bodies to ask them to follow suit and to ensure that primary care trusts, NHS hospitals and so on deliver on the same commitment.
As my hon. Friend the Minister also made clear, the Secretary of State for Communities and Local Government has written to the Local Government Association to encourage its members to play their part, too. I join the hon. Member for Caithness, Sutherland and Easter Ross and my hon. Friend the Member for Luton, South in noting the important contribution to prompt payment that all businesses can make, particularly big businesses. The Government have delivered for our part by introducing legislation back in 1998, by taking the action taken by my right hon. Friend the Prime Minister, and by taking the further action that has been initiated today.
I should acknowledge that many private sector firms are already committed to prompt payment. Some are already identified on the Institute of Credit Management’s website, which I commend to the House. The hon. Member for Broxbourne (Mr. Walker) dismissed the concerns of my hon. Friend the Member for Luton, South about corporate social responsibility, but, with all due respect to him, I think that it is incumbent on private sector firms to exercise the same responsibility as Government and to pay their bills on time. That is a matter of corporate social responsibility. I welcome those names that are already on the ICM’s website, and I hope that there will be many more to come.
In his opening speech, my hon. Friend the Minister also noted the additional advice that will now be available through Business Link. It is already providing support to some 850,000 customers in any one year. Free health checks offering advice and support to businesses will be available, if they are wanted, over the coming months.
Training matters, too, as my hon. Friend the Minister acknowledged. My right hon. Friend the Secretary of State for Innovation, Universities and Skills has also acknowledged that and has announced today that there will be further flexibility in the Train to Gain programme, which will help to make more short-term funding available and enabling a greater range of employees to benefit than has been the case until now.
It was somewhat disappointing to hear the intemperate nature of the opening comments made by the hon. Member for Rutland and Melton. There was no apology for the dismal record of the Opposition when they were in power. There were two terrible recessions in which business after business went to the wall and honest, hard-working people, both those running businesses and those working for businesses, saw a lifetime of effort and graft swept away by the arrogance of the then Government who simply would not listen. Three million people were unemployed—not once, as my hon. Friend the Minister said, and not twice. Interest rates were at a record level, at a base rate of some 15 per cent. At the heart of both recessions, 1,000 businesses went to the wall every week. That is the record of the Opposition and I suspect that that is why the hon. Member for Rutland and Melton sought to take such an unnecessarily partisan approach to the issues that small businesses face.
It is a matter of regret that hon. Members such as the hon. Members for Broxbourne and for St. Albans (Anne Main), chose to follow that intemperate approach—
The Opposition flip and they flop, they shilly and they shally and every single time they get the necessary response wrong. That is why we will continue to provide support to businesses. We recognise the challenges that small businesses as well as large businesses face, and we will continue to support them in the challenging times to come.
Question put, That the original words stand part of the Question:—
Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments):—
Mr. Speaker forthwith declared the main Question, as amended, to be agreed to.
That this House notes that in the 1980s Britain experienced two recessions with unemployment reaching three million on both occasions, a thousand businesses a week were lost and that interest rates reached 15 per cent.; further notes that the roots and effects of the current financial crisis are global and unprecedented in recent decades; believes that at such a time it is essential that the Government acts to restore stability and confidence and therefore supports the action the Government has taken to inject liquidity into the banking system, to recapitalise the banks and to make funds available to resume the medium term lending essential to small businesses; further notes that the UK is better placed than in the past to get through the economic downturn with an economy that has produced three million more jobs over the past decade and enjoyed strong growth and low inflation; supports Government measures such as the Prime Minister’s announcement to reduce to 10 days the payment period from central government to small businesses and to bring forward funding for small businesses available through the European Investment Bank; and believes that the Government should reject public spending cuts at this time and continue working with the banks to ensure the availability and competitive pricing of lending to the small and medium sized business sector.
That the Social Security (Miscellaneous Amendments) (No. 4) Regulations 2008 (S.I., 2008, No. 2424), dated 10th September 2008, be referred to a Delegated Legislation Committee.—[Mr. Roy.]
Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees),
Value Added Tax
That the Value Added Tax (Finance) (No. 2) Order 2008 (S.I., 2008, No. 2547), dated 29th September 2008, a copy of which was laid before this House on 29th September, be approved.—[Mr. Roy.]
Question agreed to.
Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Delegated Legislation Committees),
That the Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2008 (S.I., 2008, No. 2645), dated 6th October, a copy of which was laid before this House on 7th October, be approved.—[Mr. Roy.]
Division deferred till Wednesday 22 October, pursuant to Standing Order No. 41A (Deferred divisions).