House of Commons
Friday 6 March 2009
The House met at half-past Nine o’clock
The Chairman of Ways and Means took the Chair as Deputy Speaker (Standing Order No. 3).
I beg to move, That the House sit in private.
Question put forthwith (Standing Order No. 163).
Small Business Rate Relief (Automatic Payment) Bill
I beg to move, That the Bill be now read a Second time.
I sincerely thank the supporters of the Bill and of the campaign, especially the Federation of Small Businesses, for taking a lead, suggesting the measure to me and campaigning tirelessly on behalf of all our small businesses. Towards the end of my remarks, I will name some of the many other supporting organisations, to which I am grateful for all their support and advice, especially the Local Government Association. Its unqualified support for the Bill was an important factor in my decision to proceed with it.
I also thank the 115 colleagues from all parties who signed early-day motion 676 on the subject, and the 11 colleagues, again from all parties, many from the Business and Enterprise Committee, who sponsor the measure. I thank the Minister for Local Government and the Under-Secretary of State for Communities and Local Government, the hon. Member for Tooting (Mr. Khan), for their help and advice, for agreeing to a private meeting before today’s Second Reading and for at least giving the impression that they sympathised with the Bill’s objectives and might be tempted to support or adapt it, and introduce it with a package of other measures to help small businesses. We will wait and see what the Under-Secretary says in his winding-up speech.
The Bill should attract all-party consensus because its basic rationale can be found in the explanatory notes to the Local Government Act 2003, which introduced the small business rate relief scheme:
“Research published by the Government shows rates to be an especially heavy burden for small businesses, accounting for a significantly higher proportion of operating profits than in the case of larger businesses.”
You will understand, Mr. Deputy Speaker, though the outside world does not always understand, that there are limits to what a private Member’s Bill is allowed to do. I would have liked to do many things to help small businesses that lie well beyond the ambit of a private Member’s Bill. To give specific examples, we cannot significantly change expenditure, or raise or alter tax rates or thresholds. The one criticism of real substance that small business people have made of the Bill—there are two exceptions, which I shall cover later—is its apparent lack of ambition in relation to business rates generally.
For example, I was recently approached by the owner of a Vauxhall car dealership in my constituency—heaven knows, car dealerships have been especially badly hit in the recession—who asked me to address the fact that business rates generally will increase by 5 per cent. at the beginning of April,
“via an historic RPI multiplier”,
for which, he says, redundancies must pay.
I also received e-mails this week that highlighted the Scottish Government’s abolishing business rates altogether for businesses with a rateable value below £8,000. I believe that those below £10,000 will receive a 50 per cent. reduction, and that those below £15,000 will get a 25 per cent. reduction. The Scottish package is attractive—I think I have understood it correctly. The Ministers and I agreed that it was complex, but I think that I have outlined its essence. It is certainly more attractive than what is on offer to Welsh or English businesses. However, sadly, a private Member’s Bill cannot tackle those bigger issues.
Void rates on commercial properties are contentious and of great concern to small businesses, as well as medium and large businesses. Again, a private Member’s Bill cannot address that.
I hope that the Under-Secretary is considering tackling some of the wider concerns later in the year, and that he will share some of his thinking on the matter later.
I am not trying to create a perfect Bill or a perfect situation. The measure is an attempt not to eradicate all problems, even those with the small business rate relief scheme, but to offer some practical assistance. It is simply another string to the Department’s bow and to the Government’s and Parliament’s efforts to make life easier for small businesses. Other things need to be done well beyond changes to the small business rate relief scheme.
I do not pretend that the Bill is a cure-all or a panacea, but I believe that it constitutes a useful and important step forward. Indeed, the Federation of Small Businesses said in a statement that it gave me to read out:
“This cash injection could save many small businesses laying off staff or closing down completely. Our members fully support the call for automatic rate relief, a key theme of our Keep Trade Local campaign.”
The Bill may have shortcomings and I am sure that, if it gets a Committee stage, we can discuss two specific changes in more detail. However, I believe that the Under-Secretary understands that the current position is unacceptable and can be improved. Approximately half of all small businesses currently claim the relief, leaving half not getting money to which they are entitled. The Bill is far from perfect—I do not claim perfection for it—but it would improve the current position and save jobs in the real economy.
At first, the Bill looked gleefully simple in its scope and attractive. However, Luff’s law of politics applies: everything, when properly understood, is rather complex. I have examined some of the complexities of local government finance and rating systems as I have chewed through the Bill’s detailed implications.
However, let us first deal with the measure’s simplicity. It is, at its heart, a simple Bill—it is, I hope the House will agree, a commendably short Bill—with a simple aim: to ensure that small businesses, which are always struggling, but never more so than in a recession, get the help to which they are entitled by law. The Bill would create no new entitlements; it would just make it easier for small businesses to get what they are already entitled to. The Bill would also bring England into line with Wales, which has had automatic payments since April 2008, and help to close the huge gap in rates for small businesses between Scotland and England.
Today is not the time to discuss the way in which the banks treat small and medium-sized businesses, but that, too, has an important impact. A couple of years ago, before the current recession, small and medium-sized enterprises employed 13.5 million people—58 per cent. of the private sector work force—and turned over £1,440 billion. Some 95 per cent. of them employ fewer than five people—they are very small businesses indeed. Let me remind the House that if the Bill is passed, they would all still pay significant businesses rates. They would get a discount, not absolution from the bills. Apart from still paying small business rates, small businesses would be acting as tax gatherers, collecting pay-as-you-earn and national insurance contributions, and paying VAT where relevant and, if they are making a profit, corporation tax. Small businesses would all still be paying handsomely for our public services. It must be understood that the Bill would not be a free ride for small businesses.
And they pay to have their dustbins removed.
Typically, businesses pay extra to have their dustbins removed, on top of paying their rates bills; I am glad for my hon. Friend’s reminder.
Given their locations and the services that they provide, small businesses, such as post offices, village shops and pubs, are often crucial to many communities. Given the jobs that small businesses offer, we must do everything possible to help them at all times, but especially now. This is not a criticism of this Government, but it is easy for Governments in general to go for big businesses and the big opportunities that they present, but small businesses make a much bigger net impact on the real economy. Crucially, we need to look to the future and to recovery from this recession, whenever it comes. Because of their enterprise, many companies, if they survive the recession, will be the medium-sized and big businesses of tomorrow.
A fascinating statistic is that 64 per cent. of all commercial innovations come from small firms. We know that this country needs to innovate to stay ahead in the international competitive race. Small firms will play a key role in helping us do so, but many are in serious trouble. The Federation of Small Businesses has seen a 200 per cent. increase in phone calls to its small business helpline compared with last year. To take one example, small independent retailers seem to be in terminal decline across the UK. The accountancy firm BDO Stoy Hayward forecasts that 33,900 small businesses will close in 2009, which equates to 120 a day. I will not list all the statistics of doom and gloom, but one that particularly worries me, as a Member with a predominantly rural constituency, is that 42 per cent. of English towns and villages no longer have a shop of any kind. We must protect the shops that are still running.
I know that we are all growing weary of the noughts on public announcements—“What’s the odd billion or trillion among friends?” one might ask. However, for small businesses, it is not billions, millions or even thousands; it is often hundreds of pounds that can make the difference between success and failure. That is why, despite its modest ambitions, the Bill is so important. The Bill could save many small businesses up to £1,200 a year. That might not sound like a large sum in the context of those billions and trillions, but it is a significant sum in the day-to-day struggle for survival of those small businesses.
My hon. Friend is making a powerful and persuasive case, and I congratulate him on introducing the Bill in such a timely manner. He will know that Worcestershire is similar to Shropshire and has many market towns. That £1,200 could make a real difference to whether a business survives. I therefore wish him every success and hope that the Government will support him today.
I am glad that I gave way to my hon. Friend, as he is absolutely right. As I will remark later—I will give the House a trailer now—rural areas would be some of the biggest beneficiaries of the Bill, as would deprived urban areas. It is therefore an important Bill for market towns, as he suggests.
What I had not realised before I began looking into the Bill is that the rates bill is the third biggest expenditure that many small businesses face after wages and rents. Crucially, the rates bill must be paid irrespective of whether the business is making a profit. Small businesses can, with great sadness, cut the staff or their hours—I know how attached small businesses are to their staff—to see themselves through a recession if they have to. They might, if they are lucky enough, also be able to renegotiate their rents with their landlord or get some kind of holiday, but they cannot reduce the rates, which have to be paid.
The estimate of the number of small businesses missing out on the relief because they do not claim it is—I think from our discussions that the Minister and I agree on this—around one half. We do not quite know why they are not claiming. Perhaps those businesses do not know about the relief or think that the process may be complicated—and heaven knows, small businesses are flooded in paperwork these days—or perhaps they think that it is too good to be true and that there must be a catch. But the relief is not too good to be true: it is there and waiting to claimed. Frankly, however, the reason does not matter. The fact is that far too many small businesses are not getting the relief to which they are entitled.
There are about 1 million hereditaments—a technical term: properties—with a rateable value of under £10,000. Of those, roughly 765,000 are classified as factories and workshops, offices, shops, and warehouses and stores, which are probably the categories that have properties eligible for the small business rate relief. For anyone who is interested in seeing the picture for their area, the Valuation Office Agency has an excellent website, on which people can enter a postcode and see how many such properties there are in that area. Doing so proves, as I have said, that rural areas and deprived urban areas have disproportionately large numbers of small rateable value properties, so rural areas will get the greatest benefit.
It has been put to me by some people that the Bill is not necessary. We could just aggressively promote the current relief arrangements and get close to 100 per cent. take-up. Well, up to a point, Lord Copper, as Evelyn Waugh once said. The Local Government Association would not be so enthusiastically behind the Bill if it thought that the answer was that easy. The LGA is prepared to see what it believes will be a modest increase in the burden on authorities for two principal reasons. First, the LGA thinks it important that residents in those small businesses get the relief to which they are entitled.
That is a clear position and I am glad to see the Minister nodding. The LGA thinks that the change should mean fewer enforcements against non-payers, which is a burdensome duty for local authorities, thereby saving them a lot of work.
Many councils are already putting a lot of effort into the application system, which involves a lot of work. Automaticity would reduce a lot of those burdens, but it seems that the amount of work done in various regions around the country is hugely different. The take-up in different regions—these are only estimates, but they look fairly good to me and they are quoted in the Library paper on the Bill, which is a pretty good indication—ranges from 26 per cent. in the north-west of England to 79 per cent. in the north-east, which is a huge difference in the northern parts of our country.
Some councils do a first-rate job of promoting the existing rate relief scheme, but some are not so enthusiastic. For a national relief scheme, introduced by Parliament through national legislation, we should not have a postcode lottery in the outcome, which is what we have at present. My area of Wychavon works extremely hard to promote the scheme and has good promotional materials. I have three more examples of good practice. Sunderland has undertaken activities to promote the scheme such as ensuring that councillors take application forms with them when visiting small businesses. That is a practical and sensible idea. Sutton has gone a step further, by identifying 1,000 local businesses that were not applying and proactively contacting them. Birmingham city council has gone further still, by identifying every business that has not applied—it can be done, therefore—and sending personalised letters to them all. That has resulted in 6,000 new applications in Birmingham city council’s area.
It is possible to make things better without my Bill, but the LGA is quite clear that it would create a co-ordinated approach and ensure that the money was getting to thousands of small businesses that would not get it otherwise. The current arrangements are rough justice, and far too rough at that. My Bill would smooth the corners of that rough justice.
How would the Bill work in practice? Small business rate relief was introduced in April 2005, after a lot of consultation, and my party welcomed it. The relief can be claimed on properties with a rateable value of up to £15,000, with higher values applying in London—this is a brief summary of quite a complex provision. All small businesses qualifying for the relief still pay at least half of their original bill—as I have said, small business rate relief is not a total relief scheme. The relief is paid at 50 per cent. up to rateable values of £5,000 and, on a sliding scale downwards, to values of £10,000. Between £10,000 and £15,000, rates are charged using the slightly lower small business multiplier, not the main national non-domestic rate. The relief is paid for by a premium charged on the business rates for larger firms, but it is a very small premium. I will return to that later. The Bill aims to make that relief automatic to all qualifying ratepayers. The need to apply will be removed—or largely removed—if a possible amendment that I will discuss later is made.
Clause 1(1) simply imposes a duty on the Secretary of State to introduce a statutory instrument implementing automatic payments to eligible ratepayers, and gives him the necessary powers to do so, with considerable flexibility. The Bill is not specific about many of the provisions that need to be made, because I recognise that the Minister and his officials will have specific ideas and suggestions for the necessary repeals and amendments. So, rather than specifying those details in the Bill, I have left them to the Department, which removes one practical objection that the Minister might have—namely, that the Bill was too detailed.
I realise that setting six months to get the regulations drafted, consulted on and approved is—at least by public sector standards—a tight time frame, but small businesses do not think that it is, as they are hurting and need that help now. Six months is the maximum period that I could put in the Bill, but I hope that, if the Bill is accepted, the Government will move a good deal faster than that.
Clause 1(2) gives the Secretary of State scope to amend existing legislation in order for payments to be made automatically. It says that any statutory instrument should be subject to the affirmative procedure. That will be an important statutory instrument, and it is right that it should be subject to the affirmative procedure and be properly scrutinised by the House within the limits of the statutory instrument procedure.
Clause 2(1) and (2) deal with the eligibility criteria for rate relief. Provided the rateable value of the property fits with the criteria set out in the Local Government Finance Act 1988—as amended in 2003—it will be eligible for automatic rate relief. This information is sufficient, and no declaration is necessary by the business owner. Clause 2(3) and (4) provide the billing authority with the power to require overpayments to be repaid, as well as giving the Secretary of State the power to make provisions to recover such sums. Clause 3 is a simple interpretative clause, and clause 4 clarifies that the Bill extends only to England, as different arrangements apply to the devolved Administrations.
There are only two objections to my Bill that I think have any real validity—there is a third objection, which I will come to later—and I have looked hard at them and decided that they can both be addressed. The first is the possibility of paying businesses money to which they are not entitled, which rightly concerns the Royal Institution of Chartered Surveyors. This could be a problem when people have more than one qualifying property in different areas of country, as the relief is essentially allowed only for one property. It is a bit more complicated than that: a business can have more than one property to qualify as long as they do not add up to more than £15,000. The relief is then available only on the main property—it gets quite complicated, but the essence of the matter is that it involves only one property.
If the Minister were scraping around for a reason to oppose my Bill—I am sure that he is not; he is a decent man—he might think that this could be it, but he would be wrong. The Local Government Association certainly thinks it wrong to be too concerned about this issue. It is blindingly obvious, for example, that firms such as Vodafone, with its plethora of telephone masts, should be excluded, and it would be easy to exclude them from the provisions of the Bill; and any rating authority can identify a branch of McDonald’s as being more than a one-off small business, so there is a crude filter that is easy to apply.
When that filtering has been done, it is possible—probable, even—that a number of businesses with premises in more than one authority billing area will not be identified readily, and they might get relief on more than one property. But all my estimates suggest that the numbers would be modest. Such considerations of overpayment should not be an obstacle to ensuring that rate relief gets to all the small businesses that are entitled to it. A small unfairness in one direction should not prevent us from sorting out a much bigger one in the other direction.
There is always an element of rough justice in payment schemes such as these. Defenders of the tax credit system do not see overpayments as an argument for the system’s abolition; they just seek repayment when they come to light, and my Bill makes that possible in relation to small business rate relief. I accept, however, that it is important to minimise the potential for over-relief, and to make preparations to prevent it. Indeed, there is already a sample audit every year to ensure that payments are being made properly under the existing scheme, and I would expect that audit to continue in the future, offering a real level of protection for the larger businesses who pay for it.
As well as the common-sense protection offered in the real world, and by the audit, two further levels of protection could be added. The first is the sole occupancy test, which would mean limiting automatic rate relief to sole occupiers—businesses that occupy just one premise in a billing authority area. I am not talking about properties occupied by just one person. This is about people who own just one property. That information is available and readily accessible to local authorities, and I understand that most of them have already begun a weeding-out process to identify which small businesses occupy more than one premise. That is easily done, and it would mean that businesses with two or more premises in an area would still have to apply for the relief, even though they might still qualify for it on application.
Most small businesses—many more than at present—would get the relief automatically, but not all. What the Bill would do is introduce the very high degree of automaticity that the Minister has indicated, in a private meeting and in the House on Tuesday, he is looking for. This provision could be incorporated in the Bill, if the Government would like that, but I understand that local authorities could do this themselves without such an explicit provision. That is a matter for the Minister to decide, and it is an issue that we could look at in Committee. I repeat the assurance that I gave the Minister in the House on Tuesday that I will accept any helpful suggestions from the Government that will improve the workings of this small but important Bill.
The second protection against overpayment would be a requirement to inform a local authority of one’s ineligibility. For example, the issue of sole occupancy does not address the question of a small business with properties in different areas of the country—a small shop in Devon, say, and a workshop in Yorkshire. Local authorities would not be able to weed out such cases—except where an obviously national or regional company was involved—without engaging in massive data sharing, which would be inappropriate.
I therefore suggest a simple device that would place on small business owners a requirement to inform the billing authority if they were being awarded relief despite owning more than one property. This could consist of a simple but prominent tick-box form on the rates bill—all businesses will still receive rates bill—confirming that the property being awarded relief was the business’s only one. This document would be returned when the business returned the cheques for the rest of the rates bill to the billing authority, or returned electronically if paying online. It would be a simple, unbureaucratic device, and knowingly making a false declaration could easily be made an offence. Whether this provision should go on the face of the Bill is again something that I am happy to discuss with the Minister in Committee.
I do not think that these issues about ineligibility are serious; they can be addressed. I had a constructive discussion about them with the Royal Institution of Chartered Surveyors, which supports the aims of the Bill. It believes that, if every small business is supposed to get rate relief, every small business should get it.
We also need to consider the impact on bigger businesses, because they pay for the scheme. Some concern has been expressed to me by the CBI in this regard, but it has also assured me that it does not oppose the Bill. However, the impact of the provisions on bigger businesses means that it has not yet decided to support it either. I hope that I can persuade it to do so, because I think that it should.
Let us put these matters in context. The rate relief scheme is self-financing. Larger businesses have their rates calculated at 48.5p in the pound, whereas small businesses’ rates are calculated at 48.lp. This difference of 0.4p pays for the small business rate relief in its entirety, at the current level of take-up. I believe that only half of all small businesses receive the relief. In fact, the proportion is probably less than that. Under my Bill, the relief will be largely or entirely automatic and, with the safeguards that I have described, the take-up of the relief will roughly double. That order of magnitude is clearly not wrong. That will mean a corresponding doubling of the extra precept to about 0.8p.
I can understand bigger businesses’ opposition to any significant rate increase, particularly when they face a 5 per cent. increase this year, but what big business deserving of respect would begrudge struggling small businesses such a small sum? To name a name—not quite at random, as we shall see in a moment—why should not the Tescos of this world pay just a fraction more, if that means that we can protect smaller, independent businesses? The big businesses of today—Tesco in particular—were once small, and today’s small businesses could one day be big, but only if they are given all the help that we can give them.
I am not making a partisan speech, but I will divert briefly into party politics of a kind. Writing in the February edition of Prospect, Phillip Blond of Demos reminded me of the words of Edmund Burke. That great Conservative philosopher spoke famously of Conservative radicalism being founded on the little platoons of family and civic association. He wrote:
“To love the little platoon we belong to in society is the first principle of public affections. It is the first link in the series by which we proceed towards a love to our country and to mankind.”
I want to stand up for the little platoons against the Tescos of this world. As it happens—this is why I named Tesco a moment ago—I believe that the two biggest business rate payers in my constituency are a supplier to Tesco and the Evesham Tesco store, in one of the market towns to which my hon. Friend the Member for The Wrekin (Mark Pritchard) referred earlier. Under my proposal, Tesco would pay just a little more, and, to coin a phrase, for small businesses, every little helps.
To put this in context, the supplier’s bill would rise from £436,500 to £440,100, an increase of £3,600. The bill for Tesco in Evesham—I hope my maths are right—would rise from £583,940 to £588,756, an increase of £4,816. That is a very small sum for the damage supermarkets have done to small businesses—suppliers and retailers—and to town centres. As Phillip Blond put it so well in the Prospect piece I mentioned earlier:
“Our fishmongers, butchers and bakers are driven out—converting a whole class of owner occupiers into low wage earners, employed by supermarkets.”
If the Minister were to use the cost of my proposal to larger companies as a reason for opposing the Bill—I am sure that he would not—he would be using a very precarious argument indeed.
I am drawing towards my conclusion, but I want to emphasise the extremely encouraging level of support that the Bill has received. The Country Land and Business Association told me:
“Many rural businesses may be unaware of their eligibility for rate relief. Putting the onus on the billing authority is a good way to ensure those who are entitled to this relief are paid straight away”.
The National Federation of SubPostmasters wrote:
“The NFSP has long campaigned for improvements in the way in which business rate relief is paid.”
According to the Institute of Directors:
“For too long, small businesses have paid more than their fair share of tax, so in these challenging times, politicians of all political persuasions should support the automatic system of rate relief proposed by this Bill.”
The British Chambers of Commerce says:
“We have recommended this measure as part of a package of measures to improve the local cash flow situation for businesses in the current recession in our recent report with the Local Government Association”.
It is a very good report, called “Back to business: local solutions”, which I commend to the Minister and the House. The key quote from it is:
“Government should increase the take-up of these funds by changing the regulations to ensure that the relief becomes automatic”—
a quote from the British Chambers of Commerce and the Local Government Association. The Association of Convenience Stores says:
“This Private Members Bill to automatically give qualifying businesses rate relief will be extremely welcome”,
while the Greater Manchester chamber of commerce, which has taken a particularly close interest in the Bill, said:
“Any legislation that will potentially benefit the cash flow of businesses, without a long and laboured process, can only be of value and would have our support”.
Individual trade associations, such as the Electrical Contractors Association, have also written to me. It pointed out:
“Approximately 80 per cent. of the ECA’s members are classed as small or medium-sized enterprises, who would really benefit (particularly given current economic circumstances) if the Small Business Rate Relief were to be made automatic.”
One endorsement of which I am particularly proud came from the Campaign for Real Ale:
“Automatic payment of small business rate relief would help avoid the unnecessary closure of well-run community pubs and we urge the Government to support this much needed Bill”.
I would like to tell the Minister that the all-party beer group had an excellent meeting on Wednesday this week, at which I found, to my joy, that the Society of Independent Brewers had added its voice to the campaign. We have the brewers on our side; it is a brave man who takes them on.
Furthermore, the coalition Local Works, which campaigned to implement the Sustainable Communities Act 2007—it is a huge coalition of a bewildering array of organisations—enthusiastically supports the Bill, saying:
“Making automatic the rate relief to which they are entitled would not only help small businesses stay afloat, it would also be a step towards keeping communities together.”
I add that one of the members of that coalition is the Women’s Institute—another group that Labour Members know that they take on at their peril, as it has so many members. These are not groups that the Minister should alienate lightly.
Finally, let us consider how small business rate relief has already helped real people out there in the real world. I am not talking about generalities; I could quote case after case to show how the relief has been used for good purpose. Ray Johnson of Canine Care says:
“We receive this, a saving of 50 per cent. on our business rates; we now pay £1,200 per annum. The money saved has been used for staff training, very good”.
Leslie Long, a surveyor, says:
“The saving has simply eased our cash flow during these difficult times in the property business. The £1200 or so could otherwise equate roughly to our telephone line rentals!”
That is good, as well. Gordon Waylett of Eurographics says:
“The £1141.02 received was spent on our annual advertising campaign with Yell.com, Yellow Pages and National Pen. The last item where we give away hundreds of promotional pens each year has been very successful for us.”
This money is being used to secure a future for these businesses as well as to sustain them through the recession. Cris Ramis of Phoenix Health and Fitness says:
“I save £55 per month as a result of small business rate relief. The money I save contributes to extra staff, staff training, and new equipment.”
There we are, Mr. Deputy Speaker. I think I have made an overwhelming case for the Bill—[Hon. Members: “Hear, Hear.”]—and I am grateful for the roars of encouragement from the troops behind me. I have one or two final thoughts before I finish.
Business rates are to be revalued next April and it is likely that they will rise as a result. Small businesses not receiving rate relief at that stage will be hit even harder by that increase in the rates bill and all small businesses currently receiving the relief will have to reapply for it at that stage—after the revaluation. Surely it would be better to get this automatic payment scheme in place now and get it running smoothly before any changes are made so that even more damage is not done to small businesses by rising rates bills.
I said that I was not going to be partisan, but I cannot resist just one small comment at the end—if it is partisan, I offer it in a non-partisan spirit. I hope that the Minister follows the advice given by the Leader of the House at Prime Minister’s questions this week when she said:
“Opposition Members have a choice: they can either say to their constituents that there is no help and that nothing can be done, and wring their hands, or they can work to support businesses and bring schemes forward.”—[Official Report, 4 March 2009; Vol. 488, c. 845.]
That is what I am doing; I am proposing a scheme to help small businesses, and I really hope that it will gain the Government’s support.
There is just one final reason the Government might be less than inclined to support the Bill—and it would be a good reason. The only good reason I can think of would be if the Minister wanted to go further than the scope allowed to my private Member’s Bill. I would welcome any such indication. I commend the Bill to the House.
It is a great pleasure to follow the hon. Member for Mid-Worcestershire (Peter Luff) and to congratulate him not only on securing the opportunity to introduce a private Member’s Bill, but on proposing this particular Bill. I hope I betray no confidences in suggesting that I seriously considered introducing a similar Bill. I had talks with the Federation of Small Businesses, but during the period of my discussions about introducing such a Bill, I became aware that the hon. Gentleman was also interested in doing so. I felt that he, as Chairman of the Select Committee on Business and Enterprise, would do an admirable job of introducing such a Bill, so I looked elsewhere. I am fully supportive of his Bill, of which I am a sponsor. I very much hope that it will achieve its Second Reading.
The hon. Member for Mid-Worcestershire made crucial points about the circumstances of small businesses. I have not been in business for nearly 20 years, so I cannot say that I have current experience, but I know from my experience as a professional optician running a high street practice that running small businesses on the high street is no easy matter. It is sad that nowadays so few in the House have direct experience of business, because if they did, they would take a very different view of the pressures that business people face.
At a time of recession, when all the cards are stacked against people who are trying to keep their businesses functioning, one of the worst pressures is cash flow; indeed, cash flow is the perennial issue for anyone trying to run a small business. The problem for them is finding the money at the right time to pay the bills so as to enable them to make money the next day. Many factors are involved. Obviously, they include the profitability of the business. Without footfall or without people buying the products, things will always be difficult, as they are at the moment.
The ability to acquire credit is another key factor. If a business cannot keep credit lines open, difficulties can arise. Some of the bizarre decisions taken by banks over recent months are a matter of great concern. Credit lines have been suddenly reduced and credit has been made either unavailable or so expensive as to be unusable. Those are real issues for many people. Another critical issue is fixed overheads that cannot be avoided. Some staffing costs cannot be avoided, unless the business is single-handed. There is a degree of flexibility, but it is harsh and not easy to implement. Yes, it is possible to sack staff, but that is not loyal to staff—and it is very hard to make a business work when people are not there to do the job. Other fixed overheads include rent, which is often inflexible, at least in the short term; utility bills, which have increased massively, so people find it hard to pay them; and the rates, which is the topic addressed by the hon. Gentleman in his Bill today.
I agree with the hon. Gentleman about the role of small businesses, as they are the dynamo of our economy. They are what makes this nation of shopkeepers tick. They may be in the manufacturing and service industries, where they often grow to become the large and medium-sized businesses of the future—companies have to start somewhere, and they often start in the small business sector—or they may be in the retail industry, which is the most visible sector in the present downturn.
I am very concerned about the prospects of retail businesses over the next six months or so. We are already seeing the scars in our high streets. We have seen many scars as a result of the depredations of big business, when large retail companies have taken business from the high streets, but now we are seeing empty, boarded-up shops which only a few months ago were prosperous places of business.
The hon. Gentleman has made a number of points about the fixed costs to businesses, but he has not mentioned bank charges and interest on the loans that companies may be taking out, and the need for banks to assist small business. Given all the support that the state—the taxpayer—is now giving the banks, is it not about time that the banks did their bit to support small businesses in their time of need?
The hon. Gentleman is absolutely right, although I think that I did mention the relationship with the banks. They are being extraordinarily unhelpful to small businesses in particular, despite the much-trumpeted schemes that the Government are trying to introduce. I do not criticise the Government for trying to introduce those schemes; I just wish that they would get a move on.
When I spoke at a business breakfast in my constituency the other day, an entrepreneur said to me “Do you realise that in order to take advantage of some of these Government credit schemes, people have to sign a form without knowing what the costs will be?” What sort of business plan involves signing up to credit when you cannot possibly know what the cost to your business will be? Since the country as a whole—the taxpayer—has put finance into the banks, there is surely an overwhelming argument for the banks to provide the service that we expect from them as a utility. It is not up to them to decide that they will swallow the taxpayer’s money without providing that service.
I do not wish to protract debate on this particular issue, as we might be ruled out of order, but I shall be delighted to return to it on Monday during a debate initiated by my Committee. I hope to see the hon. Gentleman and one or two of his colleagues there so that we can discuss the issue at greater length, because what he is saying is absolutely true.
I am very glad that we shall be able to discuss these matters in more depth on Monday, rather than now, when we are supposed to be talking about business rates. What I was hoping to do today, however, was explain the context in which small businesses face an indifferent future, and are therefore in need of rate relief.
It is not hard to identify major defects in the overall concept of the business rate, which in my opinion needs to be fundamentally reformed. It needs to become a better and more progressive system than at present. It is a long-held and cherished view of my party that the rating of site values produces a better outcome than the current system of property rating, but let us set that aside for the moment.
Another problem is the fact that the business rate is a nationalised tax, although it used to be decided by local authorities. Many years ago, when I was leader of Somerset council, we used to set both the domestic and the business rate. Before we set the business rate, we would have detailed discussions with the business community about what was happening in the local economy, and the extent to which they saw investment in key areas of infrastructure as a priority for the council. Having engaged in those discussions, we would set the rate in the certain knowledge that the money that was collected would be spent in the local community. That is a key factor. Now, however, the business rate is collected and distributed by means of a national formula. There is no direct connection between what is collected from an area and what is paid into it to support local infrastructure and economic development, which I think is a major defect in the system.
Another problem is the ratchet effect: the rate goes up inexorably each year, with little regard paid to local economic circumstances. I hesitate to suggest that that would not be a problem if the business rate were still controlled by local authorities, because the council tax also tends to go up inexorably throughout the country. As we all know, that is the case because although the council tax appears to be under the control of local authorities, the biggest single element is the decision of central Government. In any event, many businesses find it very irksome to face bills that are substantially bigger each year, often having increased by more than the rate of inflation, because it forces them to devote a larger proportion of their profit margins to the payment of business rates.
The hon. Member for Mid-Worcestershire made another good point about revaluation—the spectre that hovers over not just business rates but domestic council tax. In the case of council tax, revaluation has been put off repeatedly because it will be so horribly difficult. In many parts of the country, including my own, property values have soared while incomes have not, and the same will apply in the business community: the profitability of businesses bears very little relation to the property values in a particular area. Throughout southern Britain—especially in the west country, but I think it will apply in the south-east and the south and west midlands as well—we are likely to see substantial increases in rateable values at the point of revaluation. That will cause difficulties for businesses of all sizes, but particularly small businesses.
Against that background, we have what I consider to have been the valuable introduction of small business rate relief in 2005. I congratulate the Government on recognising some of the difficulties and introducing a measure to help some of those who were finding it hardest to cope. However, as the hon. Gentleman pointed out, the problem is that very few businesses—only half those that are eligible—claim the relief to which they are entitled. There are a million possible reasons for that. Perhaps, as he suggested, the system is seen as complicated. People tend to take a rather fatalistic view of these matters: on reading that they may be eligible for relief, they may instantly assume that they will not receive it. They may have to be persuaded to take up an eligibility to which they are entitled. The same applies to benefits for individuals; there are very low take-up rates when receipt of those benefits is not automatic.
There are many difficulties in being a small business person overwhelmed with bureaucratic requirements. It is hard enough for such people to do all the paperwork that is directly associated with their businesses without having to do what the Government want them to do as well. I am afraid that things tend to be put in a big pile in a corner of the office and labelled “Too difficult; will have to wait”, with the intention that they may be dealt with some time late in the evening when the person involved might just be able to get around to seeing what they are all about. Sadly, that is one of the reasons why it can almost be guaranteed that, when we have meetings with business people, those who turn up will be a few junior representatives of large businesses and some solicitors, accountants and other professionals, while there will be very few people who are actually trading, because they cannot afford the time to leave their businesses to attend a meeting, even if it will be helpful and give them valuable and necessary advice.
May I interject here an important point that we in this House often forget when we are considering the recession? When we discuss safeguards, safety nets and support, very few of us ever think about the self-employed. They are facing extreme difficulties at present, but they are somehow off the radar all together. It is as if they just do not exist, but very often they are the entrepreneurs and wealth creators whom we ought to be helping as far as we can.
There are many reasons why businesses might not claim under the current system, but what is the answer to that? The hon. Member for Mid-Worcestershire mentioned one of them: local authorities could be much more aggressive in marketing the availability of relief. The trouble with that, however, is that it is expensive and it involves using money for a purpose that ought to be unnecessary and taking it away from more valuable uses. Therefore, although this could be done—some local authorities are a lot better than others at doing it, and some are, frankly, useless, no matter how many times they are exhorted to do it—I am not sure that it is right in principle to spend a large sum of money on marketing a relief when there is the alternative mechanism that the hon. Gentleman is proposing, which will do the job much better.
The proposal of my hon. Friend the Member for Mid-Worcestershire (Peter Luff) is clearly the easiest way of proceeding. The owner is on local authorities to ensure that businesses comply with all sorts of rules and regulations, and they have an army of people with clipboards who visit businesses regularly. In carrying out those visits, those people have the opportunity to say to these businesses, “By the way, have you applied for rate relief, for which you are eligible?” Is it not amazing, however, that they never seem to do that? They are very keen to pursue all the other things that are costs on businesses, but they seem to forget assisting businesses in such ways.
The hon. Gentleman is right, and it has long been a complaint that many such people feel the need to inspect for a variety of reasons— although it is most unfair of me to use the phrase “feel the need” in this context, as it is this place that tells them they must feel the need by imposing duties on them. Nevertheless, they all come at different times and make different recommendations, and many people who run small businesses wonder who will knock on the door next and tell them that they must spend a few thousand pounds on doing something they do not feel is necessary.
To use the cliché, let me say that a one-stop-shop approach would be much more effective in ensuring that businesses are complying with all the necessary and proper regulations, such as those that apply to the consumer, to trading standards and to fire safety—I sometimes have quarrels with fire safety officers over some of the requirements they make, however—and perhaps more effective in removing some unnecessary regulations. It would be best if a single inspection gave a bill of health and, as part of that, businesses were asked, “And by the way, can we just check you’re getting everything you should be getting?” That would be so much better for businesses; it would ensure that they had certainty in what they were doing and would be a real help. I fear that as yet we are a long way from that position, however, at both local and national Government level.
The hon. Member for mid-Worcestershire also addressed one of the potential criticisms: the scope for overpayment under the automatic approach. I was going to intervene on him, but then he covered the point I was about to make: the key to this matter is self-certification. It is an obvious solution, and it would be easy for businesses to do: on receipt of the rate relief, they would have merely to certify that they complied with the conditions, and if they made a false declaration, they would be committing an offence. That is the way to do it; it does not involve a great amount of bureaucracy, and most business people ought to be able to answer the simple question whether they have another business premises that they ought to be declaring. If they have another premises, further calculations will have to made, but if they do not, the relief should be made. That is a very simple way of dealing with the problem.
It would be discourteous of me not to thank the hon. Gentleman for his support for the Bill, and also for the excellent speech he is making. It may interest him to know that this was the issue on which the support of the Institute of Directors hung. When I explained the mechanism I had in mind, the response was, “That would be excellent—not bureaucratic, but very straightforward and simple. We will therefore support your Bill.” So the business community thinks exactly as he does in this regard.
I am gratified by that, and I thank the hon. Gentleman for his kind words. This proposal is simple common sense, and it becomes more than simple common sense in the context of the sort of recession we are facing at present, when it becomes an urgent necessity. The fact that similar arrangements are in place in Wales underlines the fact that we will be short-changing businesses in England if we are unable to follow suit.
I do not believe that extra costs to Government are involved. The self-rectifying procedures already in place apply a small disbenefit to large businesses, but that is not proportionate to the benefit they get from their large premises, as under the current system large premises are not rated anything like proportionately with small business premises. This issue is not desperately difficult to overcome. In any case, the Government should have a contingency plan for 100 per cent. take-up, because if they do not plan for such take-up, they are being dishonest to the people to whom they are offering the relief. I therefore presume that they do have such a plan. Furthermore, set against whatever small disbenefits there may be to either Government or large business, there is the massive public benefit of keeping small businesses in existence and trading over the next six months to a year when things will be so difficult, we will lose so many enterprises and our towns and villages will suffer the scars of the recession in a way we have not seen for, if not quite a generation, a long period.
It is absolutely essential that any assistance that can easily be offered is put in place. I hope that the Minister will be able to say today either that he completely supports the Bill or that he will take immediate action to implement the proposal that forms its basis in order to bring it into effect. He cannot simply say, “Yes, it’s a good idea and when we have had a consultation period, followed by a Green Paper, followed by a White Paper, followed by a review in a couple of years’ time, we will get round to it.” That will not be good enough, because businesses are suffering now and need help now, and what is proposed is a real way in which we can provide that help. I commend the hon. Gentleman for his perspicacity and eloquence in introducing this Bill today.
First, I should declare an interest. As the owner of a small retail business in Wales, I clearly will not benefit if this Bill is enacted, because, as has been stated, its provisions already apply in Wales. That proves yet again that where Wales leads, others will follow. In rugby, apart from last Friday, and in various other areas—[Interruption.]—Wales has led the way. [Interruption.] There are a lot of sedentary interventions, Mr. Deputy Speaker, which are putting me off. [Interruption.]
Order. If the hon. Gentleman needs my help, he has only to let me know.
We needed the Deputy Speaker’s help last Friday, Mr. Deputy Speaker. Anyway, we will put all that to one side. The fact is that this measure was introduced in Wales in April 2007 and is working and giving assistance to a number of small businesses there.
The hon. Member for Somerton and Frome (Mr. Heath) mentioned that experience in running small businesses is useful in this place from time to time, and I absolutely agree. The Industry and Parliament Trust does a great job in giving Members of Parliament who have no basis in business some knowledge of how business works, but it does that, in the main, with big business. That is useful, but it might also be useful—I do not know how such a scheme would work—if it got a number of small businesses to co-operate, perhaps through the auspices of the Federation of Small Businesses. Then perhaps MPs who do not own a small business could secure placements with the FSB and be placed in small businesses, so that they can find out about the costs and burdens that some are facing.
My hon. Friend has raised a very important point, but the only way that small businesses could do that is to form—I think that he was alluding to this—a consortium; otherwise, the burden on them would be onerous. However, I completely agree that if we really want to understand what is happening in the business market, we must not talk just to blue chip companies; we must speak to the small companies that are at the forefront in dealing with this recession.
My hon. Friend is absolutely right. The vast majority of businesses in this country are small to medium-sized enterprises, and in many cases they could not take somebody on for 20-odd days, simply because they do not have the people to cope with that, but perhaps they could take on MP an for one day. An MP could, for example, be placed with 20 small businesses in a year, which would give them a fantastic grounding in the problems that small business people face.
My hon. Friend raises an important point about the involvement of small business with Government in a wider sense. It was noticeable that, just some six months ago, only the CBI represented British business in a European matter regarding the Temporary and Agency Workers (Equal Treatment) Bill. That area needs to be widened by Government, too, to ensure that the small business voice is heard much more sensibly and clearly in this place.
I totally agree with my hon. Friend. We are in a deep recession and workers are being laid off left, right and centre. When Woolworths closed, everybody knew about it because it was headline news. When small businesses close, it is not headline news as such, because we might be talking about a self-employed person or one or two people being made unemployed. However, if we multiply that by the number of small businesses throughout the country, we are talking about thousands of people being made unemployed or redundant every week. So when it is all added up, not only are small businesses crucially important to the economic vitality of this country, but the burdens being placed on them are also very heavy indeed. We must look at how we can lift the burdens—for all businesses. We are competing with countries near and far, and we must see what we can do to help our businesses compete and survive. Lifting the burden of paperwork is one way.
The big question being asked today is, “Hold on—all this cash is being made available, yet half the businesses are not claiming it. Why not?” The hon. Member for Somerton and Frome intimated that in some cases, people think, “Hello—it is free money. This cannot be right. And if I do apply for it, I will not get it because there are too many hoops to pass through and hurdles to cross. Why should I bother filling in a form when I am not going to get the money?” There is some truth in all that.
My hon. Friend is touching on a very important point; indeed, I nearly intervened on the hon. Member for Somerton and Frome (Mr. Heath) about it. I have with me a selection of forms from local authorities that are trying very hard to make things easy for small businesses, such as an online form from Winchester city council. However, they are still pretty intimidating. There are four pages, and pages of notes, and as was said, far too many businesses would put them on the “too difficult” pile, to be dealt with at a later date.
That is right, and I suspect that a lot of small businesses have their favourite table for such things, which has to be reinforced from time to time because of the weight of paper. People put such questionnaires there and when they have a bit of time, they will have a look at them. All it takes is one difficult question that people cannot answer off the top of their head, and the form is then put on the table. It is followed by another, and then another, and people never get round to dealing with them.
Also, a lot of small business people tend to work all the hours that exist. They get up at 6 or 7 in the morning and work through till 10 at night. When are they going to find the idle time to sit down and start filling in forms? They just do not have the time, so if they do not need to fill them in, they are not going to do so. As I said, just one difficult question—for example, “What is the square footage of your premises?”—is enough to make people say, “I’ll leave it for another day”, and it never gets done. It is almost as if we have devised a scheme that, although it will assist businesses, we do not want people to apply for. Indeed, that is exactly what is happening—half of businesses simply are not applying for it because they have not got the time, or they think that they will not get the money.
As has already been spelt out, the business rates are a huge burden on a lot of businesses. If we could assist them with that, we would not just be giving respite care or some extra profit to small businesses; we are talking about the difference between some of them surviving and some of them not surviving at this difficult time. I have mentioned the bank charges for businesses that have loans. The interest that some banks are charging seems to bear no relationship to the historically low interest rates that we all heard about just the other day. In addition, there are accountant fees and utility bills, which have already been mentioned.
The refuse issue is a famous one. I remember that when I first started working in business, we paid business rates and the collection of the rubbish was part of that. Then, all of a sudden, we started receiving another bill—for the collection of the rubbish, which was, we thought, already covered by the business rates. Did the fact that we were now paying a separate bill for the rubbish mean that the business rates went down? No—not a chance. Not only did the business rates continue to rise relentlessly, but so did the bill for refuse collection. There are a number of other such bills, the water rates being one.
It is important that people listening to this debate understand how business rates are collected, and that they do not blame their local authority for the size of the business rate. The Government set the business rate; the local authority is the debt collector on behalf of central Government.
The fact is that most small businesses do not have the faintest idea about the difference between the domestic rate and the business rate, who collects it, who benefits from it and where it all goes. All that they know is that they have to write a cheque for it or set up a direct debit from their bank account. That is the problem. They are not particularly bothered about how it is spent or where it goes; all that they know is where it comes from.
I am sorry to intervene again on my hon. Friend, who is making an excellent speech. He has reminded me of a very interesting anecdote. I think that it was Anthony Hilton who, in his own column in the Evening Standard a couple of weeks ago, blamed local authorities for rising business rates. It was an extraordinary statement from someone of that seniority. There is a lot of misunderstanding of the rates system and it would be good to get it sorted out.
Absolutely. A survey by the Local Government Association estimated that 870,000 firms were eligible for relief but only half were getting it, so we are talking about almost a million businesses out there that could be getting this relief and are not. We must work out a system to ensure that that relief gets through to them. We know that there are a lot of benefits that people are eligible for, but which they do not take up. There are a lot of means-tested benefits for which people have to apply, but they do not do so. I suspect that the Government have a formula: whenever they make a benefit available to anybody, they probably work out the percentage of people who are not going to claim it. If it were not for that percentage of people, any such benefit would be a lot more costly for the Government and they might not make it available—that is a real problem. In this case, the cost-neutral aspect of the Bill makes it all the more attractive.
The Government have behaved honourably throughout on this matter. When the relief was first introduced, the precept was 0.7p in anticipation of a certain level of take-up but, in the event, the take-up was lower, so the precept was reduced to 0.4p. A precise estimate was made, but the take-up was disappointing.
We know about that issue; if things were made automatic, everybody would get the benefit. The Local Government Association estimates that small business rate relief can save businesses in Britain up to £2,500 annually. Many small businesses will save at least £1,000 if my hon. Friend’s Bill is passed, and that money is significant. Each of us can probably think of businesses in our constituencies that are struggling or that have failed over the past few months. Sadly, the Kaydee bookshop in Clitheroe, which I have mentioned before in the House, has closed—it was an old business that had survived many downturns in the economy. That makes many local people unemployed, and all the ties that people have had over the years, through buying books for their children from the shop or going there as a child themselves, are lost. People have a romantic association with some of these smaller shops and smaller businesses, and this situation is a crying shame.
The supermarkets, which have been mentioned, do what they do. People support them and that is why they do so well, but it is a shame that all the small butchers shops, fishmongers and ironmongers, which added character to towns around the country, have, sadly, closed their doors for the last time. That process detracts from the character of places and we lose the characters who ran a lot of the places. This sort of Bill just might make the difference and mean those businesses surviving through this recession and into the future.
We know that a lot of these small businesses are social services. An accountant who sat down with them would say, “Are you barmy? Why are you spending all these hours doing that? You would be far better off closing the business and going to work for Tesco, because you would make more money out of that.” The labour of love that a lot of these small business people have for these businesses, which perhaps their father or grandfather started, is the reason why they carry on with them; it is a tradition—it is in their blood—but there is no economic sense in it at all.
The Federation of Small Businesses supports the Bill and has highlighted the fact that 85 small businesses close every day. We know that a lot of small businesses are struggling with cash flow, so we must ensure that the banks are doing what they should be doing to support these businesses. The Bill is supported by a veritable who’s who of the small business world, including the National Federation of SubPostmasters, the LGA, the British Chambers of Commerce, the Country Land and Business Association, the Institute of Directors, the Association of Convenience Stores, the National Federation of Retail Newsagents and the Campaign for Real Ale. I am a member of at least three of those bodies—I shall leave it to the House to guess which ones, but I am going to mention CAMRA. I am not only a member of CAMRA, but vice-chair of the all-party group on beer.
As has been mentioned, an important and significant meeting took place in the House just this week, when five Ministers got together to answer some of the questions from MPs of all persuasions about what can be done to support the British pub. As we know, 40 pubs close each week in this country—that works out at more than 2,000 a year. What are communities? We have seen our post offices go, our rural schools close and our rural bus services being attacked—even rural churches are closing. In some places the rural pub is the only thing that is left. If it goes, that would tear the heart out of the local community. We must all start to consider what we can possibly do to support an iconic British institution. My hon. Friend the Member for Mid-Worcestershire (Peter Luff) rightly said that it is a brave man who takes on CAMRA. I think that is why the five Ministers turned up together; they were afraid to go on their own, so they had to turn up in fives just for their own protection.
The sort of measure before us will give some support to help pubs to survive this recession while we try to work out all the other things that could happen to give the pubs some relief. I know that one of the Ministers looked at ways of giving recognition in the ratings system for the community use of pubs. A pub could be given some support if it had a football club or a darts or dominoes team, if the pub was being used as a local post office or if it was being used by a luncheon club or by a number of other groups that might meet in it. There should be some recognition if locals are able to use the pub’s car park or its toilets—public toilets may not be available in some villages—when they are not using the pub. All those things could be recognised in the ratings system, and that should go on top of the measure that my hon. Friend is proposing.
The Bill deals with money to which these businesses are entitled—it is their money; we are not talking about giving extra gifts. The businesses in Wales are getting it, but businesses in England are not. We must ask why they are not getting the same sort of support from our Government, when the Welsh Assembly Government are supporting businesses in Wales.
If I were to be critical—I did mention this to colleagues when my hon. Friend was speaking—I would say that it is a great shame that we cannot make this measure retrospective for a period of five years. What a great boost that would be to many struggling local businesses. We could say, “Listen, you’ve been eligible for this for a few years.” Why should we deny those businesses the money to which they were entitled last year and the year before? I can understand the complications, because he mentioned a few of them, even with this Bill becoming enacted. We are supposedly looking at ways of supporting businesses and injecting money directly into local communities, so that that money gets out straight away into the community—this is one way of doing that. Small businesses have cash-flow problems, so that money will be circulating as quickly as possible. The great thing about small businesses is that when they need anything done they tend to use other small businesses—people take the Yellow Pages out or they use the local knowledge in their head, because a lot of their customers are trades people. They will thus start to support the local businesses that are around them. It is a self-help scheme, and it is long overdue.
I am looking forward to the Minister’s speech, because I hope that he can give some hope that the Government will support this measure in one form or another. Kicking it into the long grass is not an option, because a lot of these small businesses cannot wait. They simply do not have the option, because every time the postman comes they fear opening a letter just in case it is a final demand, or another bill from a supplier that they did not expect or that they feared would come.
The Bill needs to be introduced as a matter of urgency. The Budget is coming up in just a few weeks’ time, and I hope that we are talking about that sort of time scale for this measure, because if it is not treated as a matter of urgency—such a scheme is operating in Wales, so there is no good reason why it should not operate in England too—we will be putting further nails into the coffins of a lot of small businesses up and down the country. Running a business is a very hard struggle these days, under all the pressures that exist. Small businesses need all the help that they can get, and this Bill will give them just that.
It is a pleasure to follow my hon. Friend the Member for Ribble Valley (Mr. Evans). Indeed, I have had the pleasure of following him through the pub door on a couple of occasions, and I welcomed his remarks about saving the pubs—[Interruption.] I shall overcome the barracking. I also welcomed his remarks about the work that he does for the all-party beer group. I am a co-founder and vice-chairman of the all-party save the pubs group, so I support his views thoroughly.
I especially congratulate my good and hon. Friend the Member for Mid-Worcestershire (Peter Luff) on presenting his Bill, which he did exceptionally well. I was delighted to become a co-sponsor of that Bill, and I pay tribute to my hon. Friend’s work as Chairman of the Business and Enterprise Committee. He is very knowledgeable about such matters, and I am sure that the Minister will take that knowledge into account. That is why I am hopeful that we will hear some encouraging remarks about this issue when the Minister responds to the debate.
I wish to declare an interest. It is well known that my interest in this place is small and medium business, and in fact that is one of my major reasons for coming to this place. I have a business background: I founded two companies that now employ 250 people and I am still the non-executive chairman of one of those businesses. I am proud to be able to say that, because it allows me to bring some knowledge of that sector to this House. That is one of the reasons why having other interests and involvements can be a good thing for the well-being of this House, but it is only right and proper that I should declare that interest.
It is also right and proper to say that I am a keen supporter of “Keep Trade Local”, the campaign run by the Federation of Small Businesses, which is a successful, worthy and timely campaign. Indeed, I went to help to launch the campaign in Coventry.
I said that I had some knowledge of the SME sector, especially small business. The point that I want to make today is that the harsh reality that faces small businesses, especially those in our town centres the length and breadth of the country, is the struggle for survival. They are simply fighting to be here this time next year. That is their business objective, and that is a vital fact to hold on to as Ministers decide whether to support this measure. Small businesses have a prime objective in mind—survival.
For a small business that is not in the cash business, a one-off debt default is a massive problem that can instantly turn a successful business into a failure. My hon. Friend the Member for Ribble Valley mentioned the worries that small businesses have about letters coming through the door. I can tell him that another worry is receiving a letter from a liquidator appointed for another business that owes them money. That can send small businesses into exactly the same situation. Aged debt lists are lengthening. A small business might have been having its invoices paid in 30 days or 45 days, but the time is being stretched to 60 days or 65 days, and that puts a massive additional burden on its cash flow requirement—one that, in many cases, proves just too great. I shall talk about the banks more later, but it is in that area that the money is not getting through. Good businesses are experiencing difficult cash-flow scenarios because their aged debt lists are lengthening, and the banks are simply not responding to a great enough extent. The money simply is not getting through.
Working capital is at a premium for small businesses. I am not talking about millions of pounds. In the case of small businesses, we are talking about hundreds of pounds, as my hon. Friend the Member for Mid-Worcestershire said. For such businesses, £5,000 is a massive amount of money, and therein lies the difficulties that they face. Cash is king, and that needs to be recognised.
Small businesses are dealing with these difficulties in several ways. First, those that employ 10, 15 or 20 people are undertaking a massive and rigorous review of their staffing levels. In order to ensure that their outgoings are reduced, they are cutting staffing levels. Secondly, they are trying hard to tighten their credit controls. If those not in cash businesses used to invoice every month, they are now invoicing every week. Thirdly, they are almost totally cutting capital spending. Those companies that wanted to invest a little to increase their efficiency and productivity are now saying that they cannot afford a new telephone system or to invest in the plans that they made a year or six months ago. Finally, many are making sizeable cuts in their marketing and advertising budget, even though in many respects this is the worst time to do that. They are being forced to do so, because the name of the game is survival, and the objective is to be around this time next year.
What implications does all this have for the Government and the recession that we now face? Sadly, it means more unemployment, because businesses are being more frugal about how many people they employ. I recognise that we are talking about businesses that employ only small numbers, but collectively that adds up to a sizeable number of jobs. I know that that is not what the Government want, and that is one reason why we have to help small business as much as we can.
The reduction in capital spending leads to a vicious cycle—less spending leads to fewer jobs, which lead to a less buoyant economy. That is especially relevant in the small business sector. Of course, small businesses should be talking to their banks. The company of which I am a non-executive director went to talk to the bank about its contingency in September last year. We recognised that we might need the bank’s support and help if we suffered any of the problems that I have described. Because we have been banking with that bank for 20 years, we had a relatively favourable response, but many small businesses are frightened to go to their banks in the present climate. They are genuinely worried about what the banks will or will not do.
Most small businesses do not operate on loans: they operate on a bank account with an overdraft facility. That facility is very important to them, because it gives them flexibility so that they are not lumbered with a three or two-year loan. They have a flexible friend in an overdraft that they can repay as and when they see fit, rather than having to abide by the terms of a loan agreement that they might have to pay a sizeable fee to get out of, even if business picks up. They are therefore concerned about loans. They do not talk to the banks, so the banks call them in, and they are forced to negotiate new overdraft facilities, often for shorter periods. Those new facilities require a renegotiation fee, perhaps only £300 or £400, but it is another demand on cash flow that they could do without. When they negotiate a new deal for their overdraft, they find that they are paying, if they are lucky, 6 per cent. above base rate, but in many instance 7 or 8 per cent., and I have even heard of someone paying 9 per cent. above the base rate. They are therefore caught in a cleft stick: they have to face the recession on the one hand, and a difficult scenario with their banks on the other.
I am sorry to interrupt my hon. Friend’s cogent argument, but it is not just the fact that small businesses are penalised with interest rates of 9 or 10 per cent. above base to get those loans and overdrafts, as there are often add-ons, particularly insurance cover, which is compulsory in many cases. When small businesses go to obtain a loan from their banks, they pay huge interest rates and, at the same time, there is a demand—sometimes implicit, sometimes not—that if they do not take the insurance cover, they will not receive a loan, which, as hon. Members can imagine, is hugely expensive for them.
My hon. Friend is absolutely right. I was about to move on to the additions placed on small businesses through that renegotiation process. Insurance, as he said, is one of the conditions that are appearing more and more. So, too, are personal guarantees. I have been told by the Federation of Small Businesses that 40 per cent. of the people they surveyed were considering packing up their business. My fear is that that was because they went home to their partner and said, “Look, we’re going to have to put the house on the line.” Their partner says, “We certainly are not: we worked hard for this house, and it’s all we’ve got.” That is another fearful story that is doing the rounds—a fact that, in itself, is a danger.
The final problem, apart from personal guarantees, insurance of the kind that my hon. Friend described, and extra demands on the business appearing in the small print of the negotiation agreement, is decisions that are being made higher up the line in banks. Twenty-five years ago, when I started my first company, which now employs 140 people, as I have said, the banks were almost a partner in my business. We met every three months, and they acted as my financial adviser. They knew the local business scene, and were aware of the local business personalities. They were incredibly helpful, and partly responsible for the fact that that company employs 140 people. Sadly, in many banks in small and medium-sized towns, that facility no longer exists, as it has been shoved up the decision-making ladder to the point at which deals are matrixed, and they are done so on worst-case scenarios, which means a higher cost than would be necessary if the deal were done at a lower level where people understood the local business scene. That is another problem that has arisen in the past 20 years: decisions are taken higher up the line, and the small business man in a small country town or, indeed, in a suburb of a larger town or at the edge of a city does not get the chance to talk properly to someone who really knows about the local business scene. Another massive support for small businesses has therefore disappeared.
No wonder small businesses are fearful of banks, and they desperately need our help, support and, equally, our understanding. I am led to believe that the Government can provide that understanding, and I hope that we hear more about that when the Minister replies. The Bill is one way in which we can provide that help, which is why I fervently support the measures that my hon. Friend the Member for Mid-Worcestershire has introduced in the House, as well as his speech and, if I may say so, the speech by the hon. Member for Somerton and Frome (Mr. Heath), who represents the minority Opposition. We need to get behind the sector in every possible way. The answer is not loans, as they are not flexible enough. I have said that the money is not coming through and, indeed, the Leader of the House of Commons, who filled in for the Prime Minister on Wednesday, made the point that the loan guarantee scheme is not yet in operation, even though it was due to come in on 1 March. That scheme is meant to help people higher up the food chain, but its delay is indicative of bureaucracy getting in the way.
I genuinely believe that the Government wish to help. I am not knocking the Government for the things that they are trying to put into effect, but I am concerned about the quality of the management that puts those actions into effect. It is simply not good enough in any theatre of business or politics to say, “This is what we propose; we have therefore solved the problem.” It does not work that way. We have to manage the project, and be sure that it has been put into effect. We have to fine-tune, monitor and police it. I fear that that is not happening, so I urge the Government to consider doing more, because it would be helpful to the sector that we are discussing.
I have made the point that there is one way in which we can help. It does not require a big change, it will not cost a lot of money, and the fact is that it could well remove the straw that breaks the camel’s back for many small businesses that face difficulties at present. We have heard that less than 50 per cent. of them take up the offer to apply for relief. They do not like bureaucracy—that point has been made by my hon. Friend the Member for Ribble Valley. In fact, some of them are concerned about democracy, because they fear that it might invite more inspectors into their business, and impose more regulations and requirements on their busy and limited management time. They do not like getting involved at that level with bureaucracy, so it is a simple measure that we can take.
We have heard that take-up is patchy, and I shall give the House two examples of near-neighbours in Essex. In Tendring district council, 72.8 per cent. of small businesses that qualify claim relief. In Thurrock council—next door, I think, for those people whose geography is better than mine—which is a unitary authority, only 27.1 per cent. claim. It is a massive difference, and there must be an explanation. Perhaps—and I should have found out, Mr. Deputy Speaker, as I can see that you are looking at me with some interest—Tendring district council has written to the people who qualify, and has taken steps to encourage them to apply. Perhaps Thurrock council has not done so: I do not know, and I do not wish to apportion blame, either.
I am sorry to interrupt the flow of another excellent speech, and I am grateful for my hon. Friend’s support, but it may help him and Mr. Deputy Speaker to know that Essex county council in particular takes an exemplary interest in the issue and is driving it forward aggressively with district councils in its area.
Many of my small business colleagues will be delighted to hear that message, and I hope that it spreads to the rest of the country. The truth of the matter, however, is that it ought to be an automatic right, and that case has been well and truly made by my hon. Friend. We know that 40,000 small businesses—according to BDO Stoy Hayward, it is 33,900—will go to the wall this year. Many of them are in our high streets, and many of them are the self-same people who are involved with local charities, and serve as councillors, of whatever political party. They take an interest in local society, and they are the people who will go to the wall. The harm to our communities is multiplied by that.
We need the sector to hang around, especially when the green shoots come. We know that it is a sector that provides jobs growth. It provides massive amounts of British creativity, and it creates vitality in our high streets, as I have just explained. There is a further point. The sector lays the foundation for the supply chains of UK plc. To demonstrate how vital that base is, I need only quote the fact that Airbus UK employs 13,000 people directly, but another 140,000 people are employed through its supply chains. The small business sector is vital to the whole panoply of our industrial sector, our wealth-producing sector. It is vital to the whole of our business and commercial sector. As Winston Churchill said, I repeat that because it is so important.
We need the sector to help us meet the global challenge, which will no doubt be a much more difficult challenge to meet when we come out of the recession. More manufacturing jobs will have moved to China and India when they get moving again. We need all the creativity, enterprise, drive and enthusiasm we can get, and people in the small business sector provide it.
My hon. Friend is a great champion of the people of Northampton, South and is making an excellent case. Does he agree that it would help if we had more business representation on the Government Benches? If there were some experience of business there, there would be some understanding that large businesses started as small businesses. Small businesses develop into medium-sized businesses, and those develop into large businesses, keeping people in jobs.
My hon. Friend is entirely right, and I support the general thrust of his question.
That allows me to conclude my remarks, which I am sure will delight you, Mr. Deputy Speaker. The measure is a simple change for the Government to make, which would mean so much for small businesses. I welcome what I believe to be the Government’s support for the measure. I only ask them to implement it quickly and to ensure that it is properly managed, so that their intention is turned into the action that they wish to see. The sector is watching the House closely this day. It will watch how we act, what we say, and how the Government respond. I hope we can please the sector when the Minister replies.
It is a privilege and an honour to follow an hon. Friend with so much knowledge of the business sector. I support the Second Reading of the excellent Bill introduced by my hon. Friend the Member for Mid-Worcestershire (Peter Luff). So many of the arguments that we have heard today are simply common sense. It is striking that it requires a private Member’s Bill to introduce a measure that the Government and the House want and, more importantly, the business sector desperately needs.
Many of the arguments advanced today are relevant to my constituency. As we have heard, the measure is important for businesses in the rural community, but it is no less important for those in the urban community. As my hon. Friend the Member for The Wrekin (Mark Pritchard) said, it is small businesses that grow or that are taken over or amalgamated that become the larger organisations in this country. I represent a constituency that is both urban and rural, and there are pressures on both communities.
In my constituency the problems started long before the present recession reared its head. That was because of Buncefield in December 2005, when my business community and my residential community were devastated by the largest explosion and fire that the country has seen since the second world war. The business community and the local authority came together quickly and brilliantly, then a real issue arose. Many businesses had relocation insurance, but many did not, especially the small ones. Some moved to other premises if they could, but some went bankrupt straight away. They could not have survived.
When businesses moved to second premises, they still had a business rate liability for the premises that had been damaged by the explosion. I have raised the issue with Ministers before, but we still have not concluded how we can resolve the issue of special needs when something out of the ordinary happens. After three years, Lord Newton’s inquiry has concluded. I praise his chairmanship of the committee, but the inquiry was carried out behind closed doors. We have never had a public inquiry into the devastation in my constituency. The inquiry concluded that my constituency needed special status to help businesses regenerate. The Government have had the report for some time, but we have not yet received any indication of what that special help might be.
One small change, in addition to the Bill, would be to say that instead of the new rule on empty rate business rates going to 100 per cent. of the business rate after six months, if there are special circumstances, such as the fact that a factory has been blown to smithereens and it is physically impossible for workers to work there, the business is not charged at 100 per cent. after six months. That seems to be common sense.
When special events occur—a natural disaster or an industrial disaster such as the one in my constituency—why should a business be penalised for trying to keep going in another premises by at having to pay 100 per cent. business rate there, as well as 100 per cent. business rate after six months on the unfit premises that it left? Perhaps the Minister will address that when he replies. If he cannot do so today, will he write to me? It is an important issue.
The Bill is excellent, but there are aspects of it that need to be fleshed out in Committee, such as the point that I made about businesses that get rate relief on premises that, for some reason beyond their control, they have to leave and then claim business rate relief on a second property. Under the present rules and as the Bill is drafted, a business is not allowed to claim for two premises, but if it cannot stay in its original premises why should it lose the relief on its second premises? That is important to the hundreds of businesses in my constituency that, through no fault of their own, had to move out of their premises to other premises and, under the present rules, cannot claim the relief on the second premises.
Another fact that the Bill should address is that many businesses are not big enough to be in premises of their own, so they go into buildings of multiple occupancy or into serviced offices or premises. In that case, part of the service rent that those very small businesses pay is the business rate on the whole building. The service provider should be able to claim relief for the small business in those premises. That is a big issue for people who are trying to start up in business, and for businesses in my constituency whose premises have been severely damaged.
Such businesses may have had to downsize for that reason or because of the current business situation, and may have moved into serviced premises or premises of multiple occupancy. They are still paying the full amount of the business rate, in proportionate terms. Even if they qualified for business rate relief, they would not get it because they are not the main service provider. If the Bill does not progress to Committee, the Minister must still address that issue. Thousands of small businesses are in such premises and the business rate is a huge burden on them as part of their rent.
A further issue that I wish to raise with the Minister arose in my constituency this week when bailiffs arrived at a small office. Although more recently Government bodies such as Revenue and Customs, which collects VAT, seem to have got their act together, I am still getting calls from constituents who say that bailiffs are arriving to collect business rates, despite the fact that those business are clearly struggling. Promises were made by the Government, not least by the Prime Minister and the Chancellor, that businesses would be given all the help possible. That message is not getting through to all local authorities. As we have heard, some of them are doing well in promoting the relief on business rates through their good offices; it is clear, however, that others are not doing as well as they could. Has that anything to do with incentives? I do not mean financial incentives, but clearly it is a burden for a local authority to incentivise local businesses to come forward. If local authorities deploy members of staff day to day to promote the issue or give people the help that they need—rather than the bailiffs coming in—what is the benefit to them, given that their revenue streams, like those of all organisations, are suffering so much? I cannot see why a local authority would be keen to spend extra money on staff to promote the Government’s scheme, let alone the one proposed today, if there were no incentive.
As I said in my intervention, local authorities are just collectors of the tax on behalf of the Government. They have to seek the best value for their residents. Why would they do what I have mentioned? The Bill will take away from local authorities the pressure of having to decide whether to invest in extra staff to help small businesses. If the Bill is passed, that problem will go away; local authorities will not have to consider extra help or involvement. Personally, I think that they should help; it is important that my local authority helps small businesses in my constituency. However, we have to understand the pressures that local authorities are under. I do not know why, for instance, Havering, which is a London borough, is so different from the unitary Thurrock authority, which was alluded to earlier. It may simply be the fact that it does not have the money to put staff on the front line to promote the scheme.
The scheme in the Bill will take many money pressures from local authorities and simplify things. As has been said, when we visit small businesses we often see that their in-trays are much larger than their out-trays. The pressures mean that they do not have time to fill in forms or to work out whether they qualify for the small relief or not. That relief, however, could be what keeps them going that little bit longer while they wait for new business or a new order to come in.
As we have discussed for generations of Governments, we should remove bureaucracy. The issue is about deregulation. We had a deregulation Minister when we were in power, but all we see now is businesses having more regulation and paperwork. This small, simple Bill will remove so much of that from small businesses and local authorities. It will simply say that people are entitled to help from the scheme as long as they tick the box to say that they are entitled in the right way. As I said earlier, we need to look in Committee at why certain people have two business premises, so that they are not excluded because of circumstances out of their control.
Protecting small businesses is surely what government is all about, especially at this time and especially in my constituency, which still suffers so much from the devastation of the Buncefield explosion. The recession, on top of that, makes it all a real double whammy for my constituents, who are suffering enormously. I do not understand why the Bill cannot go through quickly; it could pass through Committee in a couple of sittings and be on the statute book before the Government even start discussing the Budget. That is what businesses want: action today, not jam tomorrow.
I add my congratulations to my hon. Friend the Member for Mid-Worcestershire (Peter Luff) on having secured the opportunity in the ballot to introduce the Bill and on his excellent speech. I also thank and congratulate all the other hon. Members who have taken part in this debate.
It will not come as a surprise if I say that I am naturally inclined to support the “little platoons”, to use a phrase mentioned earlier in the debate. Like a number of hon. Members, I have an indirect involvement with small business. When I was growing up and deciding what I was going to do in the world, my mother ran a small business, as did my stepfather. I am conscious of the difficulties that they faced—in particular, the hours that they worked and the issues that they had in coping with the paperwork involved in running a shop and a driving school. Things have not got any easier since. I am sure that Members of all parties have received correspondence that has brought such issues home.
My second point has been well made in this debate; it is about the extent and urgency of the problem for small businesses. The problem runs right across the small business sector. I do not want to be needlessly partisan, but there is no doubt that the recession is placing unprecedented burdens and difficulties in the way of small businesses—right across the piece, and in all parts of the country. That has been well alluded to.
When I was walking up one of my secondary shopping parades, I saw that the number of empty premises is increasing. We need to help people, and this Bill is a sensible measure that tries to do that in a targeted way. As the hon. Member for Somerton and Frome (Mr. Heath) said, one of the concerns of business is cash flow. The Government have promised some action on that, but I hope that the Minister will be able to assist us by saying when we are likely to see, for example, the moneys under the enterprise finance guarantee scheme. It is important for businesses that that should get flowing to the front line. Secondly, there is the question of overheads. I need not repeat the evidence, which has already been set out in considerable detail, of the significant role that business rates play as overheads for small businesses.
My hon. Friend the Member for Mid-Worcestershire was right to say that there is a wider and bigger issue as far as our approach to small businesses and business rating is concerned. I hope that in due course we will have the opportunity to debate those wider, bigger issues in the House. Some of them have already been flagged up. We are in the course of considering the Business Rate Supplements Bill, which has given hon. Members—including the Minister, my hon. Friend the Member for Northampton, South (Mr. Binley) and me—the opportunity to raise a number of the difficulties that the business rating system creates in the current climate. I hope that in due course we will have the chance to consider not only assisting small businesses with small business rate relief, but giving local authorities the ability to levy a discount on business rates, as well as provide the possibility of a supplement. My party is committed to that, and I hope that we will be able to look to carrying it out in due course. We cannot secure such a provision in the scope of this Bill, but this Bill would bring a targeted and immediate relief to the small business sector, and I wholeheartedly endorse that.
There have been a number of campaigns on behalf of small shops. I pay particular tribute to my hon. Friend the Member for Hertford and Stortford (Mr. Prisk), who is unable to be here today, but who has been very involved in the issue as shadow Minister with responsibility for small businesses. The campaign is an attempt to give small retailers information about one-stop shops and the means of raising their maximum entitlement.
My hon. Friend the Member for Mid-Worcestershire was right to pay tribute to the work of a number of local authorities, of all political persuasions, in trying to raise awareness of the issue. Essex county council is a particularly good example; naturally, I must make reference to Bromley borough council, my own local authority, as well. A lot of work is being done, but, as the Local Government Association itself recognises, even if there is some initial administrative burden, it would be better overall if there were an automatic relief. Resources currently used for one-off promotions could then be concentrated on other longer-term business development. It is not surprising that my hon. Friend’s proposal has the support of not only the business community but the local government community. That is a pretty strong recommendation, and I hope that that will weigh heavily in the Government’s consideration.
Reference has also been made to the variation in take-up among the regions. The fact that the recession is affecting every region is another reason we should be looking to a standardised scheme. Several examples have been quoted; another is the striking difference in take-up between the north-west and the north-east regions of England. Only 26 per cent. of eligible businesses take up the relief in the north-west; over in the north-east, however, it is 79 per cent.—the highest in the country. Similarly, there is a surprising difference between take-up in London and outside the M25 in the south-east, where it is 34 per cent. and 43 per cent. respectively. As my hon. Friend the Member for Hemel Hempstead (Mike Penning) rightly observed, there is no logical distinction between many of the business and economic models of towns on either side of the M25, for example. There are strong arguments for an automatic relief in that context.
I hope that in due course the Government will consider other measures that could assist small businesses, many of which operate in sectors other than the retail sector—in the ports, for example, which we have had the opportunity to debate on several occasions in this House. I hope that the Government will adopt, on a cross-party basis, a similar approach to the Bill in relation to the retrospective increase in rates in the ports and find an opportunity, perhaps through an amendment to measures going through the other place, to give relief to those businesses.
I hope that the Minister will also give his support to the specific and targeted proposals of my hon. Friend the Member for Mid-Worcestershire, whether in their current form or through another device. If he does so, he will have the co-operation of the official Opposition throughout in expediting that. We are happy to collaborate with the Government and other parties in seeing it, in whatever form, passed into legislation at the earliest opportunity, because that is what is required in the current circumstances.
The situation, which has been well set out by hon. Members, is exacerbated by a quirk in the working of the business rate system. As we have heard, business rates are set to rise by 5 per cent. in April 2009, despite retail price inflation being forecast to move, if anything, towards the negative in the coming year. In addition, transitional relief, from which many businesses have benefited, is due to end in 2009-10. Unless something is done, they will face not only the 5 per cent. increase but an additional increase in the case of many firms that have been in receipt of transitional relief but now stand to lose it. That makes action on this issue all the more important.
Has my hon. Friend read the report in today’s press confirming that the Chancellor of the Exchequer, who does not seem to want to come to this House much, is saying that he is determined to persist with the 5 per cent. increase in business rates in April? Will my hon. Friend also address the issue of the revaluation, which comes in next year? It will be based on April 2008 values, yet since then property values have declined significantly, so the rates that businesses will pay after 2010 will be based on unrealistic 2008 values.
My hon. Friend is right; he makes a very cogent point. I hope that the Government will address that fairly urgently. It echoes the difficulties that arose in relation to businesses in the ports, where the failure of the Valuation Office Agency to compile up-to-date records led to the retrospective levy. There is great concern that people will pay levels of national business rate that reflect economic circumstances that are significantly out of date and no longer prevail. I should have thought that it would not be too difficult, by means of guidance or secondary legislation, to try to amend the basis on which the multiplier is calculated for the next period and the basis of any revaluation. We need to look carefully at that. Businesses face the double whammy of the revaluation and above inflation increases—in fact, it is a triple whammy, given the loss of transitional relief, unless the Minister is able to help us about what might be put in its place. Altogether, that creates an onerous burden for businesses at the very time when their margins will be pared back even more and their cash flows will become even more constricted. My hon. Friend makes a particularly cogent point, and I hope that the Minister will be able to address it. Again, I say to him that we are happy, in a spirit of collaboration, to assist the Government in dealing with any of these issues, which are about people’s livelihoods in a very difficult time.
I noticed in today’s press further comments by the Chancellor of the Exchequer about the concept of quantitative easing. I do not think that many small businesses would want to be found referring to quantitative easing; they are much too down to earth for that. They will be interested simply in ensuring that there is enough money about, and would have their doubts about printing more of it unless they knew where it was coming from. The Chancellor justified that measure in terms of helping businesses to grow. In the current climate, it is about helping businesses not just to grow but to survive. My hon. Friend’s Bill is designed to help businesses to survive and then grow as the economy picks up.
Does my hon. Friend agree that unless we hear from the Chancellor or the Prime Minister about what they hope to achieve from the quantitative easing measures that we have heard about over the past 24 hours with regard to targets on output and, perhaps, growth in the economy within a specific time period, this measure might be more about easing the Government’s failing reputation on the economy than looking for definitive outputs as a result of it?
I do not doubt that my hon. Friend is right. I hope that the Government will take that opportunity. I am conscious that we cannot make that subject part of this debate, Mr. Deputy Speaker, and I will not seek to be drawn too far into it, as I always value highly your good opinion. I am sure that I can try to develop that point on another occasion when I see a member of the Opposition Treasury team on the Front Bench.
I hope that the Minister and I can deal with the specific issues in the Bill constructively. It is a very small but targeted way in which the Government could address my hon. Friend’s concerns and those of many others. If he is willing to say that the Bill will be given a fair wind, we will support him, but if he does not and the Government do not seek to go down this route, that will be not only a matter of great regret but a decision that the official Opposition would reverse at the earliest opportunity. A Conservative Government would seek to bring about automatic relief for small businesses, along with the raft of other measures that we would deal with, including reducing corporation tax for small firms, reducing payroll tax and enabling deferral of VAT bills. We need an overall package of measures for small business, as well as one to deal with business rating.
I hope that the Government will be prepared to work together with us on the Bill; if not, as my hon. Friend the Member for Meriden (Mrs. Spelman) made clear in Communities and Local Government questions in January, the Opposition already have an alternative package on the table. Let us hope that we can resolve this in such a way that all the parties work together. I look forward to hearing what the Minister has to say.
The good news is that I do not intend to make a three-hour speech. I know that that will please you, Mr. Deputy Speaker, and the House.
I thank the hon. Member for Mid-Worcestershire (Peter Luff) for bringing this important subject before the House. I smirked when I saw the Tellers in this morning’s Division give the impression that they did not know what they were doing. The comment has been made that there should be a handbook on how to conduct a private Member’s Bill. If only there were. One rule that I apply when considering such Bills is to ask who is promoting the Bill, whether he knows about the topic and whether the Bill is intended to address a public interest. The hon. Gentleman is charming and persuasive, he knows what he is talking about and he is trying to address serious problems that some of the most vulnerable people in our constituencies are facing. Whatever criteria one has for considering whether to support a private Member’s Bill, he does pretty well on them.
We are living through a time of great economic upheaval and uncertainty, global in its origin but local in its impact on businesses and communities across Britain. The fair comment was made in the debate that if only more parliamentarians had experience of small business, the legislation and regulations that we make might be better, or there might be less such legislation. I speak as somebody who has personal experience of involvement in a small business. It did not quite have 250 employees, like that of the hon. Member for Northampton, South (Mr. Binley), but grew from having 12 to having more than 50. I know that the challenges that small businesses face in dealing with the bank manager or accountant, with human resources and with cash flow are huge, and I recognise the extent of those challenges at this difficult time.
The Government are very sympathetic to the aims behind the Bill. In our discussions with the hon. Member for Mid-Worcestershire, his passion about the ends of the Bill and his lack of obsession with the means have been noteworthy. I hope that he recognises that we appreciate that approach, given what I will suggest towards the end of my speech.
In a time of economic uncertainty, we are keen to find ways to support businesses, and especially smaller businesses, through the downturn. However, it is important not to let the urgency of the current situation blind us to the bigger picture of supporting the business community en masse. I know that we all want rapid solutions to the problems that we face at this time, but it is important for us to deliver a package of options that is well thought out. Of course the Government are seeking ways to help businesses, and the Bill has certainly presented us with food for thought.
While the Government are pondering the matter and being thoughtful, businesses are going bust every single day of the week. Can we not have an announcement today that the measures in the Bill will be taken up? It could go through Committee in one day and we could soon be back for Report and Third Reading, and we could save thousands and thousands of jobs while instead the Government are still thinking about the matter. Surely the logical position is to move forward now.
If the hon. Gentleman, who is a friend, is a mind reader, he has misread mine. He does not know what I am going to say. I will let him intervene again towards the end of my contribution if he wishes to do so.
I have a simple question. Wales introduced this measure in April 2007. What is the problem with England introducing it in April 2009?
I was going to come on to the hon. Gentleman’s point about Wales in about three minutes. I wish first to deal with the contribution of the hon. Member for Mid-Worcestershire, who made a cracking speech. His analysis of the problems facing small businesses was spot on. He talked about the practical assistance that can be given and accepted that the Bill represents a small part of a bigger package that is required. He has never claimed that it is a panacea for all the challenges that face small businesses, and that temperate and sober approach is important. This one measure will not by itself end those challenges, but it can be part of a package to help small businesses.
The hon. Member for Somerton and Frome (Mr. Heath), who is a sponsor of the Bill, explained that he had stepped aside when he found that the hon. Member for Mid-Worcestershire was introducing it. He made a number of comments. He will accept that many of them were outside the scope of the Bill, but I believe that he was seeking to highlight the challenges facing small businesses, whether on cash flow or credit. He talked about his party’s policy on council tax as well as business rates. He said that business rates will be going up by more than inflation. He knows that the rates are capped by retail price index inflation each year, but I appreciate his point about catch-up, delay and the problems that small businesses experience in that regard.
The hon. Member for Ribble Valley (Mr. Evans) told us about his experiences as a small business man and the challenges that he faces. In his short speech, he spoke about accountants’ advice, underlining that most small businesses are a labour of love and that people are often small business men because it is in their blood. He said that sometimes an accountant will advise a small business person to give up what they are doing and work in Tesco. I hope that he does not take that advice. The House would be poorer for his filling shelves in Tesco, even though he might be better remunerated.
The hon. Gentleman made the important point that we must not assume that one size fits all. He mentioned the impact on pubs, which is important. He emphasised that we need to say, loud and clear, to small business people that the rate relief is not a windfall but something to which they are entitled, but often do not claim. We acknowledge that, as does the hon. Member for Mid-Worcestershire.
Notwithstanding the personalities involved, all of whom, on their day, can play knockabout politics, the debate has been conducted temperately and calmly. Hon. Members have not tried to use the opportunity to have a pop at one another—and I think that the hon. Member for Mid-Worcestershire wanted the debate to be conducted in that spirit. I will not, therefore, rebut the points that individual Members have made, but clarify matters where I can.
In that context, it is worth clarifying the important point that the hon. Member for Ribble Valley made about Wales, where it is true that a different system operates. However, the scheme in Wales is also different in that businesses do not fund it and it is available to multiple occupiers under a lower threshold. Although the hon. Gentleman is right that the semi-automated system was introduced in Wales on 1 April 2007, the onus is on local authorities, which must be satisfied that the businesses meet the qualifying criteria before giving them the relief. It is generally available to businesses regardless of the number of properties that they occupy within the threshold, which is much lower than in England. The Scottish system is also different, and the direction of travel in Scotland is the other way. There are, therefore, different solutions in different parts of the country. It is not simply a case of replicating what happens in Wales.
I call the hon. Member for Northampton, South a friend because we served together on the Committee that considered the business rate supplement. He is a sponsor of the Bill and he talked about his personal experience of founding two companies employing more than 250 people and his current role as a non-executive director. He gave one example of his confidence and experience having enabled him to speak to the bank manager last September, whereas other small business people, who may be more timid and—to be frank—less savage, may not do so and consequently lose out and get a less favourable deal. We are taking steps to help with cash flow and I can write to him about them, if he would like me to do so. I will not go on about them this morning, if he will forgive me.
The centrepiece of the contribution of the hon. Member for Hemel Hempstead (Mike Penning) was about removing bureaucracy and regulation. Clearly, that is crucial. I endorse the view that Parliament should be formed of more small business people partly because they recognise that need, and also know about the problems involved with the box in the corner of the office or the table continually stacked with forms to fill in. We all know from our constituencies that small businesses experience such problems.
The hon. Gentleman made an important point about rural constituencies—and, in his case, the collateral damage that the Buncefield fire caused small businesses, notwithstanding the recession.
I am sorry if I misled the Under-Secretary, who has obviously not visited my constituency, but Buncefield is not in a rural part but smack bang in the middle of my town.
The hon. Gentleman pointed out that small businesses in rural parts of the country are also suffering. He argued persuasively about the special circumstances in his constituency, whether the challenges posed by the empty property rate relief after the fire, or the shared premises that have been serviced and the problems with small business rate relief and business rates generally. As for those points, he can be in no doubt that the Treasury will be reading this debate in Hansard. I will ensure that they are flagged up and that he is given a response.
The hon. Gentleman’s further point, which caused me some concern, was about the impact of bailiffs, particularly in relation to business rates. I will look into that. If he speaks to me after this debate behind the Speaker’s Chair or writes to me with examples, I will undertake to look into that issue, which is an additional challenge. I also take on board his sense of urgency, which I will address later.
I am not sure whether the hon. Member for Bromley and Chislehurst (Robert Neill) was talking about a battalion of small troops or a small battalion of troops, but there is a difference. He talked about the challenges facing the retail sector, as well as the postcode lottery around the country and the role of local authorities. I will not fall into the trap—although it would enable me to speak for much longer—of talking about other issues, whether quantitative easing or revaluation, but we are alive to the other issues facing small businesses.
Hon. Members will be aware of some of the things that have already been done to assist businesses, but I would like to remind the House of a few of the important steps that have been taken recently. The 2008 pre-Budget report announced a credible package of measures to provide an immediate benefit to businesses, including a cut in the main rate of VAT to 15 per cent. and a deferral in the increase in the small companies rate of corporation tax—£21 billion of real help for businesses, a lot of them small businesses.
To further help companies struggling to access finance for working capital and investment, on 14 January—just over six weeks ago—my right hon. Friend Lord Mandelson launched in the other place a support package that consists of loan guarantees and a new equity fund. The hon. Member for Bromley and Chislehurst, speaking from the Opposition Front Bench, pointed out that that had not reached the streets yet and that our constituents were not seeing the benefits. I accept that. We need to ensure that the process is speeded up, so that the benefits are received sooner rather than later.
As the hon. Gentleman said, the package comprises the enterprise finance guarantee scheme, which will provide £1 billion of guarantees to support up to £1.3 billion of bank lending to smaller firms with an annual turnover of up to £25 million that are looking for loans of up to £1 million for a period of up to 10 years. There is also the working capital scheme. Small firms do not apply for the scheme; instead, banks will bring to the Government portfolios of their existing and new lending, which the Government will guarantee. The scheme will therefore not be visible to small firms, but it will help to maintain existing lending and increase the availability of additional lending.
The capital for enterprise scheme is a new £75 million fund to help viable small businesses with high levels of existing debt to raise longer-term finance. Professional fund managers will assist in that regard. On regional loans and the postcode lottery, if a business has not been able to secure funding from its bank using the enterprise finance guarantee, it may be eligible for a loan from its local regional development agency.
I appreciate the constructive approach that we are both endeavouring to adopt. I am also most grateful for the Minister’s recognition of the need to get the funds under the various programmes that he has outlined to the businesses on the front line, so to speak. However, can he help us any more, either today or elsewhere, on the time frame within which that is likely to be achieved?
Of course I can help: it will be done as soon as possible. I feel the frustration—we would like an exact date too—but the hon. Gentleman knows the challenges. When we give a date and it is missed, people stand up at Prime Minister’s questions and make cheap points about it. We are trying to do things as soon as we can, but if I have a firm date, I will send him a note, so that he can pass it on to his constituents and others.
I am grateful to the Minister, but I do hope that he accepts the sense of urgency if nothing else.
As hon. Members will be aware, we have also recently taken steps to alter the small business rate relief, which was introduced in 2005, so that applications can be made even if the ratepayer takes up occupation of a newly occupied property mid-year. From 2009-10, the statutory requirement that a property should be on the rating list on 1 April in order to be eligible for small business rate relief in that year is being removed. The 1 April restriction was recognised as unnecessarily preventing local authorities and businesses from utilising the SBRR from the date on which a business first occupied a property. The removal of that restriction will allow more flexibility for small businesses and local authorities.
I am grateful to the Minister for setting out the help that the Government say they have been giving to small businesses. Does he accept, however, that if a small business is thinking about whether to renew or extend a lease, or to take out a fresh lease on premises, it needs to have a perspective of more than one or two years? It needs to be able to think in terms of five or seven years, which are normal lengths for a lease. It therefore needs some certainty about Government policy relating to the revaluation, and to know whether it is likely to be penalised by the 2008 rateable value. The Government have given no guarantee that the relief scheme will continue when the revaluation takes place from 2010. Those are important considerations for any business thinking now about whether it wishes to continue in its present premises or invest in new ones. I think that the Minister accepts that we cannot have short-termism, and that there is a need for certainty in the medium term. Will he give medium-term certainty to those small businesses?
The hon. Gentleman will understand that I am not going to deliver the Chancellor’s Budget today. I recognise that small businesses want certainty and clarity, and we will seek to do as much as we can. There is an irony, of course, in that we were the party and the Government who were criticised for having five-year and 10-year plans, yet we are now being asked to have them. We will try to provide the certainty required, as that is one of the factors that small businesses will consider when deciding whether to renew or extend a lease; there are others. That is why experts must be available locally to give businesses the advice that they require, rather than mandarins or politicians in Whitehall.
My right hon. Friend the Minister for Local Government and I had a useful meeting with the hon. Member for Mid-Worcestershire and his associates two weeks ago. I should like to thank the hon. Gentleman again for that constructive meeting, at which he and the Federation of Small Businesses, which is supporting his Bill, said that the small business rate relief system was a good one, and that they were seeking to make the present system automatic. The question that we are asking today is whether to automate.
I should like to set out in more detail what the present small business rate relief system does and how it works, because it is important to understand its logistics when considering the Bill. As we understood the challenges that small businesses face, and because we knew that rates placed a disproportionate burden on them, we introduced the small business rate relief scheme in 2005. The scheme is targeted—I emphasise that word—at small businesses that meet a number of criteria, including that of occupying a single property in England. The system is different in Wales and Scotland. During the valuation cycle for business rates, a business seeking to obtain small business rate relief is required to make a declaration on a pro forma, stating that it meets the criteria, before being granted the relief. We have recently amended legislation to make this process easier for businesses; I shall elaborate on that point in a moment.
The scheme was introduced in 2005, and addresses the disproportionate burden that business rates place on small businesses, compared with larger concerns. Relief is available at 50 per cent. to eligible properties, up to £5,000 rateable value, with relief decreasing at the rate of about 1 per cent. per £100 of rateable value up to 0 per cent. at £10,000. It has a buffer zone for properties between £10,000 and £15,000—or £21,500 in London, for obvious reasons—that meet the small business rate relief eligibility criteria.
These ratepayers, after certifying that they meet the eligibility criteria, do not have to contribute to the cost of the scheme. The scheme is paid for by businesses not receiving the relief, through a supplement on their rate bills. For 2008-09, the supplement is 0.4p, as the hon. Member for Mid-Worcestershire said. It is worth pointing out, as this matter has been raised in the debate, that the number of properties reported by local authorities as claiming small business rate relief as at 31 December 2006 was 392,000. That is the latest published figure. The amount of relief given in 2005-06 was £202 million. In 2006-07, it was £237 million, and in 2007-08 it was £260 million.
The criteria, apart from the rateable value, are that ratepayers may occupy only one property in England, but other properties—this was referred to by the hon. Member for Mid-Worcestershire—with a rateable value under £2,200 can be disregarded in deciding whether the single-occupancy criteria has been met.
We have heard how many businesses received the relief and how much money that was, but what percentage of the businesses entitled to the relief does that represent?
That is a very good question, and I will come to one of the challenges in answering it in a few moments. Variations around the country were referred to, and I will come to why the question is difficult to answer.
Properties with a rateable value under £2,200 can be disregarded, as I have said, but the rateable values of such properties are included in determining whether or not the threshold criterion has been met.
I turn to the application process, which is really what is being debated today. I have already set out my understanding that the aim of the Bill promoted by the hon. Member for Mid-Worcestershire is not to amend the current scheme, but to remove the application declaration process and for the relief to be granted automatically. Small business rate relief is not currently applied automatically, so ratepayers must apply to the relevant billing authority. The application form makes it clear that it is a criminal offence to make false declarations, which allows the local authority granting the relief to assess whether all the eligibility criteria have been met. Those ratepayers certifying through their application that they meet the given criteria then receive the relief. The application process reduces the risk of ratepayers receiving relief when they are not eligible.
The requirement that ratepayers have to apply for the relief is set out in primary legislation. That was introduced to ensure that the relief was concentrated on businesses most in need. By that, we mean that the relief should not be available for larger businesses that occupy a number of small premises. It is targeted at genuine small businesses that need the relief the most.
The Minister is making a very helpful speech, but does he understand that the businesses not applying might be those that are actually in greatest need?
Of course I do; I am coming to some of the things that we are doing to ameliorate that concern, which the hon. Gentleman expressed well in his speech and the discussions that we have had.
There are a number of ways in which information about the relief scheme is brought to the attention of potential beneficiaries. The hon. Member for Mid-Worcestershire provided a number of good examples where local authorities were ensuring that local small businesses in their community, many of which need the relief, are being targeted to receive it. Some local authorities include with their rates bills information about the small business rate relief scheme and the availability of other reliefs. The point was made that when local authority officials go out with their clipboards to inspect, visit or meet local businesses for a variety of reasons, they could as a matter of course ensure that the relief scheme was explained and there and then get the businesses to sign the pro forma—not rocket science. Some authorities organise separate mailshots to ratepayers likely to benefit from relief and include information about reliefs on their own websites. The website businesslink.gov.uk contains information about various aspects of the non-domestic rating system, including the availability of rate reliefs.
I mentioned earlier that we have recently taken steps to amend legislation to allow more flexibility in the application for the small business rate relief. Arrangements for applying for the relief have been simplified; they came into effect in 2007-08. Instead of having to apply for the relief each year, applications can now cover the whole valuation period. For example, a ratepayer can make just one application for relief covering the last three years of the 2005 rating list—namely for 2007-08, 2008-09 and 2009-10. Eligible businesses have until 30 September 2010 to make their applications.
Although we are sympathetic to finding ways to help businesses, I shall explain why we are unable to support the Bill at this time. A number of wider issues relating to the mechanics of the support package may be offered to businesses via the rates system and there are also practical issues presented by the automation of the small business rate relief scheme. For example, granting relief automatically transfers the responsibility for ensuring that the properties meet the criteria for small business rate relief from the businesses, which know whether they meet the criteria, to local authorities, which might find it harder to determine, as in the case of new businesses, thus increasing the administrative burden on local authorities. We are not entirely comfortable with the idea of asking a local authority, at this time, to shoulder another responsibility that could easily lie with business. We would have to consult authorities formally to gauge their reaction before adopting arrangements for automatic relief.
I said earlier that central Government were seeking ways in which to help businesses, but that is also true of local government. The hon. Member for Bromley and Chislehurst gave some examples of best practice among local authorities. The current state of the economy offers local government an opportunity to show true leadership—to respond rapidly to needs, and to provide real help in tough times—but it is the duty of central Government to support it, and we are concerned about the potential for an additional administrative burden to be imposed on local authorities.
It is difficult to be precise about costs, because there is no way of knowing whether all the businesses occupying properties that fall below the rateable-value threshold for small business rate relief meet the single-occupancy criterion and are therefore entitled to it. It is possible that only a small number of the businesses that the hon. Member for Mid-Worcestershire fears are eligible but not claiming the relief—or even none—are actually entitled to it.
Although it is difficult to be precise, there is the potential for a substantial increase in costs, which would in turn have a potentially significant impact on the multiplier or supplement that ineligible businesses pay to fund the small business rate relief scheme. We cannot consider imposing such a potentially big change on businesses without more detailed information on other options that would not pass the cost to them.
I am listening intently to the Minister’s explanation of why the Government do not know how much it would cost to implement the scheme, but the Treasury must have given the Department a certain sum on the assumption that a certain number of businesses would take up their entitlement. He has already told us how much that sum was and how many businesses were expected to take advantage of it. The Treasury’s business plan must include a presumption of the amount that would be spent. What percentage of that amount remains to be spent?
I am sure that the hon. Gentleman was listening carefully, as I was, when the hon. Member for Mid-Worcestershire explained that the amount given to bigger businesses in preceding years had been reduced because fewer businesses than expected had applied for the relief. The precept, which had been 0.7p, fell to 0.4p.
The Minister has spoken of an increased cost burden. Some of that extra cost will be administrative, and some will be in physical terms. If it is being offset by the percentages given to larger businesses, I cannot see where the increased cost will be. At present, those running businesses must sign a form declaring that they are not defrauding the Department. New forms with the same requirement are already in place.
A number of criteria must be met before the relief can be received. That is the point of the forms. Under the automatic system, all businesses occupying properties below the rateable-value threshold would receive the relief.
It would be helpful to put on record the Minister’s confirmation of what I understand to be the case. I think we all agree that the highest possible figure for non-take-up is around half the number of small businesses. If the current precept is 0.4p, it would rise to roughly 0.8p. Although I accept that the precise cost is unknowable, the magnitude is known with an extraordinary degree of precision, and I consider it to be so tiny as to be of inconsequential significance to larger businesses such as the Tesco superstore in my constituency.
I shall be dealing with that point in about 30 seconds, but the point that I am making is that it is difficult to be precise about costs. There is a perception that not all eligible businesses are utilising small business rate relief. It is that belief that has led to the hon. Gentleman’s introducing the Bill. I understand that the main driver for his suggesting an automated scheme is that he believes that the major cause of businesses not claiming the relief is that they are unaware that they are entitled to it.
It is important to set out the Government’s understanding of that perception—and doing so will deal with the point that the hon. Gentleman has just raised. While it may be possible that not all eligible businesses are applying for and receiving the small business rate relief, it is impossible to know how many eligible businesses are not receiving it. I have heard figures such as 50 per cent., but it is not beyond the realms of possibility that all eligible properties are in receipt of the relief. I accept, however, that any Member who has spoken to local businesses in their constituencies will know—[Interruption.] Yes, I accept that that is a theoretical possibility.
I am listening intently to what the Minister is saying. Am I right in interpreting his comments as follows: when the Department formulated its rate relief plans only three years ago, it was 100 per cent. wrong in its estimate? [Interruption.] No, 100 per cent., in that it estimated twice as much as what the Minister is now saying is the likely effect of the rate relief. The estimate was 0.8p, but the Minister now believes the actual figure to be 0.4p. In that case, why was the estimate so wrong then, or can we reasonably assume that the estimate is right, but the take-up is, in fact, the problem?
As the hon. Gentleman knows, there are a variety of possible reasons why the number of businesses today is different from the number predicted three years ago. [Interruption.] Yes, there could be more, but, in the current climate, I think it is fair to say that there are probably fewer.
May I deal with the perception point? Figures such as 50 per cent. have been mentioned, and I have explained that there is a theoretical possibility that it could be higher. The reason why it is difficult to state categorically whether there are any—and, if so, how many—eligible properties not receiving the small business rate relief is because there are many unknown factors. For example, a number of these properties may be unoccupied and therefore ineligible for the relief. Another reason could be that they are occupied by charities or other such entities, such as community amateur sports clubs, and are therefore in receipt of other reliefs. They could also be occupied by the same rate payers, such as a chain store, and therefore be ineligible.
I said at the beginning of my speech that we are looking at the wider picture of support for businesses through the downturn. Members will be aware that the always eagerly anticipated—although more than usual this year—Budget report is scheduled for 22 April.
Will there be an announcement in the Budget about when the Government will give us information on the new thresholds for eligibility for small business rate relief consequent upon the 2008 revaluation? If the Minister is saying that that will be mentioned in the Budget, that is fine and I will not press him to mention it now, but will it be mentioned in the Budget?
A man of the hon. Gentleman’s experience will know that only a foolish Minister would respond to a question about the Budget six weeks before it, and a smart Minister would move on with his speech. I am not privy to what my right hon. Friend the Chancellor may put in the Budget report, but I do know that robust consideration is being given to what is the best method of support for businesses, and the private Member’s Bill of the hon. Member for Mid-Worcestershire has, no doubt, driven the matter even further up the agenda.
I accept what the Minister has said so far. Will he therefore guarantee to the House today that he will press the Chancellor to include in his Budget speech an announcement of the new arrangements following the revaluation?
Smart and intelligent Ministers have regular conversations with the Chancellor in the weeks preceding the Budget.
The Minister will know that smart and highly intelligent Ministers, of whom he is one, are also aware that if something is worth saying, it is worth putting down in writing. I wonder whether, when he is pressing the Chancellor, he might press him in written form and lay a copy of that letter in the Library.
I found in my previous life as a lawyer that asking the same question 12 times often gets the same answer 12 times. Following the third attempt, I will try to move on.
We are going to get to 12, are we?
I am very conscious of the fact, Mr. Deputy Speaker, that I am about to ask the Minister to break the rules of the House, but I would not mind if he repeated the few words that he said just before the intervention from my hon. Friend the Member for Christchurch (Mr. Chope), because I think that he was getting to the crucial part of his speech and I want to hear exactly what he was saying.
I will get to what I intend to say in a moment.
I am not privy to what the Chancellor is going to put in his Budget report, but until the package of options has been released—and after central Government have come together and found a way forward—we cannot at this stage support the Bill. The issue of the best ways to support businesses, particularly regarding concerns over their rates liabilities, is a wider one that cannot be dealt with in the Bill, and is separate from broader considerations of what should be included in the Budget report on 22 April.
Before I end, I want to put a number of important things on the record. The hon. Gentleman’s Bill is full of good intent, but it is not a vehicle that we believe can be used at this time to deliver help to businesses. However, I must emphasise that we have not ruled this out as an option for the future, and we are most grateful to the hon. Gentleman for bringing it to the House and allowing the opportunity for a useful debate and discussion. Concern was expressed about things being in writing, and I am sure that the Treasury will read this debate in Hansard. I thank both the hon. Gentleman and the Federation of Small Businesses for their contributions.
The hon. Gentleman has raised an important subject in the House today. His position as Chairman of the influential Business and Enterprise Committee has obviously given him a valuable insight into the type of help that small businesses will need in this time of great economic upheaval and uncertainty, which is global in its origin but local in its impact on businesses and communities across Britain. I should point out that it is not only the hon. Gentleman’s substantial parliamentary experience that has given him an insight into the needs of small businesses. His valuable experience as a successful business man in the communications industry, as well as being the company secretary of his family’s retail stationery firm, has helped to form his views and to inform this excellent debate. I congratulate him. He has served well not only his constituents who own small businesses, but all small businesses across the country, including in my constituency, by highlighting to the Government the real issue that small businesses face regarding the impact of business rates.
As the biggest representative body for small business in the UK, the FSB’s valuable input should also be recognised. We know that it is excellent at promoting and protecting the interests of its 215,000 members, be they self-employed or owners of small firms. Its purpose is to promote the interests of members, to publicise the benefits of being self-employed and of business ownership, and to identify the continually changing needs of its members. I can honestly say that, with the help of the hon. Gentleman, the FSB has truly served its members’ objectives well in highlighting the impact of business rates.
The Government are pleased to enter into this debate, as the hon. Gentleman knows, with the help of the FSB, which has identified an area of economic help that might assist small businesses in the current climate. However, as I said at the outset, the Bill and what it is trying to achieve cannot be viewed in isolation and must be seen in the wider context. Clearly, Government should support the aims put forward today by the hon. Gentleman with the support of the FSB. Between them, they have come up with a proposal in which there may well be merit. However, until the Budget report, we are not in a position to be certain that this choice would deliver the highest and/or fastest benefit to small businesses from the package of wider options on the business rate. For all those reasons, regrettably, we cannot support the Bill, and I ask the hon. Gentleman to take on board the points that I have made and to withdraw the motion.
It is a pleasure to follow the Minister, although his concluding remarks were disappointing; he had raised our expectations and they were slightly dashed by what he said. He said that it was important that we should put our concerns on the record and that they would be put to the Chancellor in preparation for his Budget. In a short contribution, I should like to spell out a bit more my concern, which I have tried to articulate in interventions, about the impact of the revaluation on small businesses. The threshold of entitlement to the rate relief is based on having a rateable value of less than £15,000, or less than £21,500 in London. Those rateable values are based on rental values in 2003.
I wish to raise again the issue of properties in Buncefield, in my constituency, that are not lettable because of the inquiry and problems associated with the depot explosion, but in respect of which a charge of 100 per cent. of the rate is being made—the charge is likely to go up when the new tariffs come in. My constituents are suffering enormously, and although these places are not lettable they are going to be charged 100 per cent. of the new rate—it is not even 100 per cent. of the current rate.
I sympathise enormously with my hon. Friend and his constituents. This is an example of what happens when unintended consequences flow from ill-thought-out Government legislation, of which we have had a plethora during the past 10 or 11 years.
The 2003 rental values are far below what the 2008 ones will be. I do not have an exact percentage, but let us suppose that 2008’s rental values are twice those of 2003. That would mean that following the revaluation, all other things being equal, the eligibility threshold would need to be doubled in order for it to be of the same value in the future to small businesses as it is currently. The Minister has failed to address the questions that I have asked on behalf of small businesses and their concern on this issue. We cannot leave this until tomorrow, or until next week or next year, because people paying rent on premises under a lease will want to know what the future is for them when they consider whether they should renew the lease. A mass of business premises are vacant, and people will hold back from taking on leases on those if there is uncertainty about the future. Small businesses, above all, want to have certainty about what their overheads are likely to be in the future. Business rates are an unavoidable overhead and many small businesses have gone under because they have failed to appreciate the fact that they cannot avoid paying rates and that those are a first charge upon the business.
I wish to impress upon the Minister that this issue is very important. If we do not get an announcement in the Budget, at the latest, this continuing problem will hang over small businesses and the whole of the rental sector affecting relatively small leasehold premises into next year and beyond. I hope that the Chancellor will say in the Budget that because of the current economic crisis the revaluation based on 2008 rental values will be abandoned—that would be extremely welcome to small business. Again, such an announcement could be made instantaneously at the time of the Budget, and that may justify a Budget headline saying that the Government are helping small businesses. If we do not get something like that, the Budget will not be one that helps small businesses. I am very concerned that the body language of, and what is coming from, the Chancellor at the moment—I base this on his adamant refusal to reduce the 5 per cent. increase in business rates that will come in from April—shows that he has not fully comprehended the gravity of the crisis facing our small business community.
I agree with the Minister about the work of the FSB, which has a strong branch in my constituency and in Dorset. I was one of the founding members of the National Association for the Self-Employed, from which the FSB grew, and it is a very important organisation that represents an important part of our economy. It also represents areas of potential growth in the economy, and I am disappointed that not enough advice is given to people who are being made redundant about the possibility of setting up their own business and becoming self-employed. However, that is a topic for another day.
I hope that I have succeeded in putting on record my concern about the revaluation and its impact on small businesses and their ability to meet their rate bills. I congratulate my hon. Friend the Member for Mid-Worcestershire (Peter Luff) on introducing this Bill. It is amazing that all the Back-Bench contributions have been from Conservatives—or perhaps it is not so amazing, because we have always been the party of small business. Other parties have tried to claim that they are the party of small business, but today we have seen the genuine Conservative party with the concerns of small businesses at its heart. I hope that we will be able to make some progress with this important Bill.
I am most grateful for the opportunity to reply briefly to this debate, which has left me in a quandary. The Minister has obviously been reading the Disraeli manual on flattery of the royal family—lay it on with a trowel—and I am grateful for his kind words, especially about the Federation of Small Businesses, which deserves such flattery. However, we must not allow flattery to influence our judgment, and we must be hard-headed in our approach.
We have had an excellent debate that has been very good-natured. Every Member who spoke did so passionately and convincingly, from a basis of a real understanding of the issues. The hon. Member for Somerton and Frome (Mr. Heath) spoke of the urgent need for this Bill, and my hon. Friend the Member for Ribble Valley (Mr. Evans) spoke of the role of community pubs and how that should be treated by the rating system. My hon. Friend the Member for Northampton, South (Mr. Binley) is always a powerful advocate for the cause of small business, and he made a particularly good speech today. My hon. Friend the Member for Hemel Hempstead (Mike Penning) made some interesting suggestions that probably go beyond the scope of the Bill and could not be incorporated in it—although I could be wrong about that—and give me some cause to think that the Minister may have a point about the package. However, the Department should take my hon. Friend’s suggestions on board.
I am very grateful to my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) for his kind words from the Front Bench and for confirming that our party supports this proposal—it has not always been the case—and will introduce it should we win the next election. That is very encouraging. My hon. Friend was challenged about quantitative easing, but in my opinion small businesses are least likely to benefit from that as they do not have many corporate bonds to sell to the Bank of England. That is a debate for another day.
My hon. Friend the Member for Christchurch (Mr. Chope) made a surprising and helpful contribution at the end of the debate. He made the enormously important point about revaluation, and the scale of money involved is huge. I agree that it is crucial that those issues are addressed clearly and categorically in the much-delayed Budget statement and debate.
The Minister showed seductive charm in replying to the debate, but I disagreed with him on some points. For example, my Committee heard evidence that the VAT reduction was a problem for small businesses, not a benefit, because it put a huge administrative burden on them. It was okay for big businesses, but bad for small ones. That point can be considered further perhaps in Monday’s debate on the Department for Business, Enterprise and Regulatory Reform.
I loved the Minister’s sub-Shakespearean theme of to automate or not to automate, although I do not think that it would make it into “Hamlet”. However, I do not accept two of his main reasons for opposing the Bill. First, I do not accept that the burden of responsibility would be transferred to local authorities, because they are doing most of this work already. The legal responsibility could rest with the small business, using the device that I mentioned, and in any case the LGA is an enthusiastic supporter of the Bill. If the trade association for local authorities does not share the Minister’s concern, the Minister should also relinquish it.
Nor do I accept that costs would rise substantially. I made a clear case, using the example of two large companies in my constituency, about the scale of the cost for them, and it would be peanuts compared to the benefit that the Bill would bring to small businesses and the wider economy. It is true that we do not know exactly how many businesses are not claiming, but we can know, because we know the number of hereditaments in the valuers offices’ lists, the maximum possible number. It cannot be much more than half, so we know it cannot be much more with an increase from 0.4 to 0.8, and thus that argument does not hold water for a second. I want to re-emphasise what my hon. Friend the Member for Northampton, South said. Small businesses are fighting to be here next year—that is their business objective, he said. That is a powerful message that sums up the debate.
I have won many battles as the Bill has progressed with my good friends in the FSB. I have persuaded my party of the rightness of my cause, and I have won the support of almost every lobby group one can think of, with the acquiescence of two that have some reservations. At the end, the Minister has said that he does not rule out the possibility of adopting the measures in the Bill. I have listened to the overall tone of his remarks, and it is my judgment call on how best to advance the issue. He is right: I do not want my name on the statute book—I want small businesses to thrive and prosper, and to be free of every possible burden. I have had dealings before with the Minister for Local Government—we have negotiated, and he has always been true to his word, which is an encouraging sign. I know, too, as a parliamentarian that if the Government are genuinely opposed to the Bill they can easily kill it on Report and Third Reading. It is much easier to do so then than it would be today. We could have a pyrrhic victory today, only to go down in flames in a few weeks’ time. With great reluctance, I have therefore taken the decision to trust the Government, and hope that the Minister delivers on the implied promises. I hope that the debate will give him the ammunition—and, indeed, his colleagues in the Department for Business, Enterprise and Regulatory Reform—to go to the Chancellor and say, “Everything possible must be done.” The sum of many small things such as the Bill could make a huge difference to the small business community. Having taken that decision, I seek leave to withdraw the motion.
Motion and Bill, by leave, withdrawn.
Scottish Banknotes (Acceptability in United Kingdom) Bill
I beg to move, That the Bill be now read a Second time.
May I say at the outset that I am grateful to the Minister and to the Secretary of State for Scotland for the opportunity to discuss my Bill with them before Second Reading? I am grateful, too, to the many constituents and other people mainly, and perhaps not surprisingly, from Scotland, who have been in touch with me since I intimated my intention to introduce the Bill. Indeed, many aspects of the measure are summed up in an e-mail that I received only this morning from Johann Murrison, in which he said:
“I am a Scot who has been living abroad for sometime and when returning home here there are times when I travel through England. I find it not only irritating that Scottish bank notes are not accepted and refused by retailers but find this overall insulting more so when some appear willing to accept Euros.
The reason being, that when refused in a retail shop which has other onlookers one feels they are being accused of trying to pass counterfeit or illegal money, which is very unsettling and embarrassing.
I fully support your private members bill and feel that resolving this issue is long overdue and the law truly needs to take into account not only this issue but also recognize the history of Scottish Notes”.
Inevitably, in pursuing a measure such as this, I learned a number of things about banknotes. First, there are relatively simply marker-type pens available that can easily determine if a banknote is a forgery. Secondly, in the presence of a television camera, Scottish banknotes are universally accepted. Indeed, in retrospect, a Bill requiring TV cameras to turn up every time a Scottish banknote was handed over would achieve the desired effect.
My constituents were instrumental in the Bill’s inception. After my position in the ballot for private Members’ Bills was announced, I sought their views on what piece of legislation I might introduce. The acceptance or, I should say, non-acceptance of Scottish banknotes was certainly to the fore. It was an issue with which I was personally familiar and a problem, at least anecdotally, that most Scots have experienced. There is also a phenomenon to which my constituency of Dumfriesshire, Clydesdale and Tweeddale bears witnesses. My constituency has as its backbone the M74 corridor linking central Scotland with the north of England. Increasingly, people who are heading back to England, having spent time in Scotland and found themselves in possession of Scottish banknotes, are going to local banks and businesses and asking to have their Scottish notes changed to Bank of England notes, for fear that they will run into difficulty with the use of the Scottish notes back in England. My constituents deal politely with such requests when they can be accommodated, but they are irked by the implicit suggestion that there is something wrong with the Scots notes.
I am listening to my hon. Friend’s argument with a great deal of sympathy. He will be aware that there has been much discussion in recent days about quantitative easing. Given the particular position of the Scottish banks, in that they are primarily agents of the United Kingdom Government, will he comment on the likely implications of his measure for quantitative easing? Would it ease it or make it more difficult?
Order. Before the hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) answers that intervention, it might be helpful to the House if I read out that the purpose of the Bill is to
“Make provision about the acceptability of Scottish banknotes throughout the United Kingdom; and for connected purposes.”
Thank you, Mr. Deputy Speaker.
I am sure the Scottish banks will be happy to play their part in quantitative easing.
In my constituency I have noticed complaints from retailers about the number of forged £1 coins that are in circulation. There are millions of them. Whereas in Scotland retailers are used to Scottish banknotes and are therefore able to detect whether they are forged, the appearance of those notes will be rarer south of the border, and will lessen the further south one goes, and the more problematic it will be to detect forgeries. Does my hon. Friend believe that the Bill that he is trying to introduce with the best of intentions might lead to many more forged Scottish notes being circulated round the UK?
I note my hon. Friend’s concern. In the course of my speech I will deal in detail with the issues that he raises. Retailers are very much aware of the problem of forged paper notes and regularly use pen devices, for example, which when marked on a note give an indication whether that note is a forgery or not. As I understand it, Bank of England notes, Bank of Scotland notes and other Scots banknotes give the same reaction, so that method operates to identify relatively simply whether a note is a forgery.
I thank the hon. Gentleman for giving way and, when the time comes, I will congratulate him on getting his Bill before us today. Although the so-called magic pens are useful in some circumstances, they are not useful in all, so they do not give the level of assurance about forgery that some people claim for them.
I note what the Minister says, but I am sure she will accept that the point applies equally to Bank of England notes, which are received in such outlets.
Can the hon. Gentleman help me with a bit of history? I am very proud of the different histories of the constituent nations of our country and the fact that we have cultural differences and differences of jurisdiction. Is there any country in the world, other than Scotland, where promissory notes are issued by private banks and are in general circulation? I am not aware of one. Does the hon. Gentleman know the answer to that?
I thank the hon. Gentleman for his intervention. I will give a short potted history of the Scottish banknote in due course. In the United Kingdom, obviously, notes are issued from Northern Ireland.
My hon. Friend’s Bill discusses the acceptability of Scottish banknotes throughout the United Kingdom. Does he think that that acceptability would be enhanced if the £150 billion of banknotes being issued by the Government as part of quantitative easing were issued in Scottish banknote form?
That is an interesting proposition, but I am conscious of your earlier comments, Mr. Deputy Speaker.
Before I took those interventions, I was discussing the issue of changing banknotes. At least people who come to outlets in my constituency to change Scottish notes for the Bank of England equivalents do not have the same experience as Mr. Derek MacLachlan of Inverness, whose attempts to make such an exchange at Newcastle airport are highlighted in the Scottish edition of The Sun of 7 February 2009. In an article headed “Currency swap blast”, Mr. MacLachlan tells of how he was faced with a £3 commission charge when he attempted to change £70 at Travelex; the transaction would have left him with just £67 of non-Scottish currency. As he said:
“It’s bad enough that some shops in England don’t take the notes, but now it’s being treated like a foreign currency. It’s…exactly the same as Bank of England money—it just looks different.”
I could not agree more with Mr. MacLachlan’s analysis, which goes right to the heart of the issue. The financial value of Scottish notes is not different. Indeed, Scottish banknotes are a key part of what passes for the Government’s vision for the banking sector; I acknowledge that, through the Banking Act 2009, the Government have removed any remaining doubts about their future. Whatever the legal framework of our currency or the meaning of the expression “legal tender”, there is absolutely no reason why Scots notes should be questioned unless there are substantive grounds for believing that they are forgeries.
Will my hon. Friend explain why his Bill does not go as far as to say that Scottish banknotes should be legal tender?
I am coming to an interesting resumé of the meaning of “legal tender” and why that does not strike at the heart of the issue. Basically, what concerns my constituents and other people in Scotland is not the legal definition, but the need for their money to be accepted, not questioned, when they are in a retail outlet. As I shall say in due course, the status of legal tender would not necessarily achieve that objective.
The Bill is not designed to force unwilling retailers to take Scottish banknotes or to impose draconian sanctions on anyone who does not. I am very aware of the regulation that business faces already, and I want less regulation, not more. Unnecessary additional burdens are to be avoided. The Bill simply seeks to put Scottish notes on an equal footing with any other banknote that is accepted.
For the benefit of hon. Members, I shall now provide a little background detail on Scottish banknotes. The first Scottish bank to issue notes was the Bank of Scotland, which has done so almost since its foundation in 1695. At that time, coinage from the Scots mint was scarce, and of uncertain value in any case. Most Scots relied on a mixture of English, French, Dutch and Flemish coins. As we would expect, the lack of adequate currency severely restricted the growth of trade.
The new Scottish banknotes were grasped first by the merchants and then by the population at large, as a solution to the problem. The notes’ success was such that, in the words of the Committee of Scottish Clearing Bankers, Scotland became one of the first countries to use paper currency from choice. The National Museum of Scotland says that one of the remarkable things about the country is that, from a very early stage, banknotes had a high degree of acceptability. It says that the Scots became known for preferring their paper money to gold, because it was easier to carry around. It was very different here in England, where paper money took longer to gain widespread acceptance.
Scotland’s innovative approach to banknotes went further than just being an early adopter. Vast amounts of ingenuity were connected with making them more difficult to forge. After all, the only punishment that Scots law could mete out to forgers was death and tongue amputation, probably not necessarily in that order. The Royal Bank of Scotland pioneered the use of colour in banknotes, with a blue rectangle displaying the words “One guinea” and the King’s head shown in red. Yet colour did not come into widespread use until nearly a century later. The Royal Bank was also the first to use notes in three different colours.
The Scottish economy once had to handle a vast array of different designs of banknote. I know that the Minister feels that the current number, 22, is a vast array, but previously there were even more. Nowadays, many of the former note-issuing banks have been absorbed through mergers and acquisitions, and we are left with just the Bank of Scotland, Royal Bank of Scotland and Clydesdale bank. This year’s Banking Act ensures that no further banks can join that list. Between them, the three banks issue a core of 16 note designs in denominations of £5, £10, £20, £50 and £100, with the Royal Bank of Scotland still printing a small number of £1 notes. As with the Bank of England, there are also sometimes additional designs in circulation to allow a transition to take place between an old and a new series of notes.
In addition, some notes have images or words added to them to commemorate an event or person of particular importance to Scotland at that time. Although of a manageable number, the core designs give a true overview of the range of pre-eminent Scottish buildings, landscapes and historical figures. The commemorative editions, meanwhile, are a way of uniting the public behind celebrations of what, as a nation, Scots cherish.
Does my hon. Friend think that there would be any scope for the Royal Bank of Scotland, now that it is owned by taxpayers, to have that fact included as part of the design of its banknotes?
What an interesting proposition. As far as I am aware—I stand to be corrected—there is no limit on what wording, presumably other than obscenities, can appear on banknotes.
This year, for example, Clydesdale bank has brought out a series of notes that reflect the 2009 year of homecoming, which the Governments in Scotland and here in London support, and the fact that it is 250 years since the birth of Robert Burns. We have seen commemorative notes to celebrate such things as the golden jubilee, the 500th anniversary of the Royal College of Surgeons of Edinburgh, and the contribution of the Royal and Ancient golf club at St. Andrews and Jack Nicklaus to Scotland’s all-important golfing heritage. The existence of these various core and commemorative designs of notes within the overarching sterling system is a vivid example of how Scottish culture can flourish within the United Kingdom.
On the question of Scottish culture and Scotsmen, does my hon. Friend agree that one innovation that might bring people closer to Government and improve the transparency of Government would be to introduce pictures of serving Prime Ministers on to banknotes, so that whether people have a lot of banknotes or a shortage of banknotes, they focus very firmly on who is in government?
I am not aware of any requirement that an individual appearing on a banknote should be dead or out of office. Indeed, as far as I am aware, Mr. Jack Nicklaus, who appeared on a commemorative note, is very much still alive—although whether he is pleased that his photograph with Sir Fred Goodwin is repeatedly published will be another matter.
All Members will have seen Scottish banknotes, and some will even have used them daily, but few will have considered all the issues that are being aired today. If they have not had cause to ponder them before, they might believe that the deeper significance of Scottish banknotes does not resonate with the public. However, I would tell them that the existence of Scottish banknotes is one of those things that we see before us every day but take for granted. Only when Governments have conspired to do away with them, either through carelessness or small-mindedness, has the attention of the public and the media flashed on to what they stand for. Only then do we realise the historical, cultural and promotional value that the notes have in addition to their monetary value.
For example, this Government hatched proposals that might have done away with Scottish banknotes by making their issue uneconomical for the banks concerned. Those proposals first appeared in a Treasury consultation of July 2005, of which nothing came, and were revived in another consultation in January 2008 as part of the measures proposed for inclusion in what was then the Banking Bill. The Chancellor saw what a public outcry the proposals had provoked, just as Robert Peel’s Government had incurred the wrath of Scottish public opinion and of luminaries such as Sir Walter Scott when they threatened Scottish notes more than a century earlier. Like the Peel Administration, this Government were forced into an entirely unexpected U-turn and dropped the threat to Scottish banknotes.
Now the Government have accepted that Scottish notes are here to stay, and indeed enshrined them in the Banking Act 2009. That is the first time that there has been new legislation governing their issue since 1845. I therefore cannot see why the Treasury will not take the final step and ensure that the notes work effectively in all day-to-day transactions, in every part of the United Kingdom.
Is there any restriction on the number or value of banknotes that the Scottish banks can issue?
I can advise my hon. Friend that, as far as I am aware, £3 billion of Scottish banknotes are currently in circulation. The Exchequer Secretary might have more precise figures, particularly in the light of the leap into quantitative easing.
I will not go down that route given your earlier ruling, Mr. Deputy Speaker, but I can confirm that there are currently £3 billion of Scottish notes in circulation. The answer to the hon. Member for Christchurch (Mr. Chope) is that there is no limit. It is for the issuing banks to answer the demand for money through the provision of banknotes.
When I last spoke to the Exchequer Secretary, she asked me whether there had been any quantitative assessment of exactly how widespread the refusal of Scottish banknotes is. I suppose that such an assessment would take the form of a field test of Scottish notes being offered to a large number of traders of different types throughout England, Wales and Northern Ireland—although, as I said earlier, there must not be a television camera in tow if that is to be objective—or a poll of the public’s experience of using Scottish notes.
I have no difficulty in relying on my constituents and the Scottish public at large. I refer, of course, to the personal experience of almost everyone in Scotland to whom I have spoken about the Bill. They have all been in a shop or taxi somewhere in England, Wales or Northern Ireland and presented Scottish banknotes, which have been treated suspiciously or refused. The House will appreciate that when a person offers a banknote and it is treated with suspicion, it causes embarrassment, as the person who e-mailed me this morning reminded us, particularly if it is held aloft and the shop manager is summoned.
The House will further understand that when a note is actually refused, there can be considerable inconvenience. Examples are legion, and the consequences can be worse than leaving a shop empty-handed. I have received several letters and e-mails from members of the public who were left unable to pay for takeaway food or for dining in restaurants, or stuck in rural petrol stations, with no means to pay for the fuel with which they had already filled their cars.
Does my hon. Friend agree that the Bill will be especially welcome in the north of England, where I am a Member of Parliament, and where businesses and tradesmen in, for example, Penrith and Carlisle, regularly do business across the border? The measure will help efficiency of trade, which is so vital at this time.
My hon. Friend is right that no cause should be given to any tradesmen or business to feel that they cannot accept a Scots note. The Bill will provide the reassurance that there is no reason for not accepting such a note. I give way to the hon. Member for Thurrock (Andrew Mackinlay).
I am sorry, I was not trying to intervene—I was just moving.
I thank the hon. Gentleman for his physical gesture of support.
Hon. Members tell me that they have rarely encountered a problem in central London, but that is because Scots notes are used so widely here and it is therefore only to be expected that retailers tend to be more familiar with them. However, in my recent visits to central London retailers and my discussions with taxi drivers, I have been told that, although they accept the notes from customers, other customers are not keen to receive them in their change. That is a variation on my constituency experience of people wanting to change notes before returning to England.
Perhaps one reason for Londoners’ greater familiarity with the notes is that certain London-based Scots appear to be much freer spending than the national stereotype suggests. One such individual has spent £1.5 trillion during the recession alone. However, enough of the Chancellor’s contribution.
Incidences of Scots notes being refused are a staple of Scottish newspapers. The coverage that the issue gets illustrates the prevalence of the problem and the extent to which the papers’ readerships identify with it. I will give hon. Members one of the more colourful examples. An article recounts the plight of a gentleman who visited no fewer than three McDonald’s outlets in Wales. He was denied service in every one of those restaurants, merely for seeking to pay with a Scottish note. As the headline writer so eloquently put it, “Burger Off with Your Scottish Banknotes”.
Does my hon. Friend agree that that represents a double whammy? Not only is that bad for business in Wales and for McDonald’s, but we have the irony that McDonald is a Scottish name.
It is indeed a Scottish name, and that may have led the gentleman in question to believe that he would be on home turf. Many reasons could be given for not trying to purchase a Big Mac or a double whammy Whopper, but the refusal of currency should not be one.
There have been several reports of other large chains, such as WH Smith, introducing arbitrary restrictions on Scottish notes in certain branches. It is therefore mistaken to believe that the problem is confined to small enterprises, which struggle for the time to put in place proper cash handling procedures or to train their staff. In many cases, the shop management has erected signs stating that Scottish notes are not welcome. It is not always a case of junior members of staff exercising caution when suddenly presented with a note that they do not recognise.
There is something deeper to the problem than the immediate embarrassment and inconvenience caused. As the Leader of the Opposition has said, Scots are proud of their banknotes. It is hard to think of a clearer demonstration of disrespect than treating such notes as if they had come out of a Monopoly box. Despite what the Scottish National party—[Hon. Members: “Where are they?”] Indeed. Despite what the SNP might try to convince this House of, there are few genuine grievances in Scotland about the Union with England. However, the refusal of Scottish banknotes is one such niggle. In ending that practice, my Bill would contribute, albeit modestly, to strengthening the Union. I am sure that all hon. Members present in the Chamber would regard that as a most welcome by-product of such a Bill.
My hon. Friend is making a fascinating speech. What is his estimate of the number of Bank of England notes in circulation in Scotland?
I am afraid that I am not in a position to give my hon. Friend that information, although the Minister may have it to hand. Given the entrepreneurial spirit of the Scots, a Bank of England note is never refused unless there is a genuine reason to suspect forgery. We are always willing to receive the currency of those who wish to trade with us.
Having set out the problem, let me turn in detail to my solution. Legislation could be a catalyst for changes in behaviour. At the heart of the Bill is the concept that Scottish and Bank of England notes are of equal standing and that there is therefore no risk to a business or individual in accepting such a note if they are happy to accept others. If that view became commonplace across the United Kingdom, the issue would be resolved. The Bill would place a UK-wide requirement on providers of goods and services to accept Scottish banknotes if other notes are accepted. I was attracted to that format not only because it would avoid the technical difficulties of giving Scottish banknotes the status of legal tender, but because it would be likely to have much greater practical effect. What matters is being able to use the notes without challenge.
It is surprising to many, as it was to me, to learn that legal tender has no real relevance in day-to-day transactions in shops or with other providers of goods and services. I can advise my hon. Friend the Member for Christchurch (Mr. Chope) that the Royal Mint helpfully explains “legal tender” as follows:
“Legal tender has a very narrow and technical meaning in the settlement of debts. It means that a debtor cannot successfully be sued for non-payment if he pays into court in legal tender. It does not mean that any ordinary transaction has to take place in legal tender or only within the amount denominated by the legislation. Both parties are free…to accept any form of payment whether legal tender or otherwise according to their wishes.”
The position is made even clearer when one realises that paying with more than the “right money”, as it might be characterised, is contrary to the rules of legal tender, even if one does not expect any change.
Furthermore, no banknotes whatever are legal tender in Scotland, yet that fact has no adverse effect on the acceptance of Scottish notes, as I have explained, or Bank of England notes. Bank of England notes are legal tender only in England and Wales, yet they are accepted in Scotland with alacrity, because retailers and other businesses in Scotland know what they are and what they are worth. I want to achieve the same for Scottish notes in England. For the sake of completeness, I should also clarify that Scottish banknotes are not legal tender anywhere outside Scotland either. Indeed, although they are allowed to circulate freely in other parts of the United Kingdom, they cannot be disbursed by any bank outside Scotland. The Clydesdale bank, the Bank of Scotland and the Royal Bank of Scotland cannot issue their own notes from their branches in London or elsewhere in England and Wales.
Even if we accept that changing the definition of legal tender would have less practical effect than what I propose in my Bill, it is not the only argument against doing so. The definition that I have read out clearly implies that, for any symbolic effect that giving Scottish banknotes legal tender status would have, in terms of their acceptance, there would be far greater unintended consequences, which would strike at the processes for resolving disputes between debtors and creditors. I should say, however, that some people feel that this area of law would benefit from some reform, but that is a debate for another day. Before leaving this issue, I want to point out that the Law Society of Scotland argues that additional safeguards given to holders of Scottish banknotes in the Banking Act 2009 warrant the notes being granted the status of legal tender, but that is simply the society’s view.
The hon. Gentleman has quite rightly taken the House through the narrow definition of legal tender, and he has come to the right conclusion about why that is not the answer to the problem that he seeks to solve. Does he also agree that many goods are paid for in non-legal tender—including debit cards, credit cards, PayPal and travellers cheques—as a matter of routine with no problems of acceptance? Clearly, the area of legal tender is not the place to look for a solution to the problem that he has outlined.
On this occasion, I am in complete agreement with the Minister. “Legal tender” is a phrase that is often bandied about in the press or in discussion, but its meaning is quite different from what people think it is. They think that, if a note or piece of currency is legal tender, there is an obligation to accept it, but that is simply not the case. Many businesses decline to take notes of a certain size or certain cards; they can also decline to take cheques.
The Bill will require all providers of goods and services in the United Kingdom that accept Bank of England notes to accept Scottish banknotes on an equal basis. I believe that that clear, simple requirement would do all that those wishing to make purchases with Scottish notes want it to do. However, it would not do any more than that. In framing the Bill, I have been careful not to make unreasonable demands on any vendor. The way in which the requirement is worded would not, for example, require sellers who currently accept only cheques and card payments to start handling cash, even when presented with a Scottish banknote. Similarly, I recognise that some sellers consider changing a £50 Bank of England note too much of an inconvenience, and they would not be required to accept large-denomination Scottish notes either.
As I have said, I am aware of the regulatory difficulties that small businesses, in particular, face. I appreciate that the current recession is putting extra pressure on those businesses. I have therefore been careful not to open the door to disproportionate sanctions such as court action. Instead, I have chosen to give the Office of Fair Trading the power to investigate complaints of non-compliance with the requirement to accept Scottish notes. The OFT may investigate complaints as it considers necessary, and notify a business of its obligations. If the OFT finds that a vendor has breached the requirement to accept Scottish banknotes more than twice in one year, it has the option to require the business to display notices about the availability of banknotes. These notice-giving provisions have precedent in section 38 of the Consumer Credit Act 2006 and section 33A of the Consumer Credit Act 1974.
These provisions reflect two things. The first is my belief that any regulation should be as minimal as possible. The second is my belief that the vast majority of those sellers who mistreat Scottish banknotes are doing so not through bloody-mindedness but simply through ignorance. Having legislation that makes it clear that Scottish banknotes are equally valid—and of equal value—and ought to be accepted will do much to ensure that sellers accept the notes. Threatening them with draconian penalties is unnecessary.
The House will also see that my Bill allows the suspicion that a note is a forgery to be used as a defence. However, that must be a reasonable suspicion. With the right awareness training, I do not believe that it is unfair to expect sellers outside Scotland to make their staff familiar with the existence of Scottish banknotes.
Will the hon. Gentleman explain—this seems a reasonable juncture to explore it further—what he means by “reasonable suspicion” in this case?
I would say that a reasonable suspicion would be that the note failed the pen test I mentioned earlier or that it did not appear to be substantially as depicted on the excellent poster and handout of the Committee of Scottish Clearing Bankers, which shows the design and security features of all current Scottish banknotes.
Is the hon. Gentleman suggesting that in my constituency in deepest Somerset, where I have to say we see very few Scottish banknotes, every retail outlet would have to put up a poster showing the design of the 22 different Scottish banknotes for the benefit of the odd passing Scottish tourist?
Indeed not, but I am sure that Scottish tourists would be encouraged to visit the hon. Gentleman’s constituency more often if they felt that they would be able to use their banknotes without having them unduly scrutinised. It is a relatively simple process to access the guide on banknotes. It can be done easily on the internet and it is readily available. I find it difficult to understand, particularly in these difficult times, why any retailer would not want to accept all the currencies being offered or would not want to take steps to ensure that people working in their premises knew which currencies should or should not be accepted. The hon. Gentleman will have heard my earlier point that, surprisingly, some of the most unsatisfactory examples of non-acceptance have not come from the small retail sector that he refers to, but in large chain stores or takeaway outlets. In my view, they have absolutely no excuse in that regard.
I hope that the Minister will refer in her summing up to the excellent poster and information guide produced by the Scottish clearing banks; they worked extremely hard to give people the level of detail necessary to identify whether a note is valid and to provide a potted history of the figures or buildings that appear on the notes. I refer hon. Members to the Committee of Scottish Clearing Bankers website.
I do not accept that lack of familiarity with a Scottish banknote is a proper basis for deeming such a note to be a forgery. Many Members will have seen the detector pens in use. They are common, as many businesses routinely use them, and they are perfectly reliable. There is no great expense involved in making a simple check before venturing any suggestion of forgery to the person proffering a note.
I hope that I have provided a summary both of the historical aspects of the Scottish banknote and of the current position and the genuine need to address this issue. The Leader of the Opposition said in Glasgow in September 2006:
“Scottish banknotes are every bit as good as those issued by the Bank of England. That’s something everyone working in shops or other parts of the service economy anywhere in the UK should know. Yet Scots often have to endure the indignity of having their money examined by suspicious staff south of the border as if it’s come straight out of a Monopoly box. Some Scottish fivers and tenners are simply refused. Of course, it’s not the end of the world, but it’s hard to think of a clearer demonstration of disrespect.”
He is right. It is time to put an end to this practice, so I commend the Bill to the House.
You saw me jump up like a sprung coil, Mr. Deputy Speaker. That is because I feel so strongly about the Bill. I support it because, while it has naturally prompted a degree of levity, it deals with a serious issue which, unless addressed with some dispatch by the House, will become a growing problem. But I believe that this issue can be addressed to the satisfaction of every player, reflecting nationhood in relation to the four constituent parts of the United Kingdom. I believe that the Bill can provide security for retailers in particular, while also avoiding embarrassment for the holders of certain banknotes.
I am angry with myself for two reasons: the hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell), whom I congratulate, has beaten me to it by introducing the Bill; and, had I introduced a comparable Bill, its provisions would have been less narrow. They would not have been confined to Scots banknotes, for reasons that I will share with the House in a few moments.
My interest in the issue relates to one of my earliest memories. When I was a very small child living in Wembley, my grandmother, Catharine, would come down from Scotland. She was a formidable lady, and I am proud to have her genes in me. It could even be said—and I say it in the nicest possible way—that she was quite a cussed woman. On one occasion she produced Scottish banknotes during her journey down to Wembley, only to experience precisely the confrontation that the hon. Gentleman has described, a confrontation that still occurs today.
Will my hon. Friend give way?
I want to complete this tale, because it is rather important.
My grandmother faced the indignity of eventually finding someone who offered her 19 shillings for the banknote. She wasn’t having that. I recall that the note had a picture of Good King Billy on it. Now, my grandmother really was not one of king Billy’s brethren, if you get my drift. She was amused, subsequently, by the fact that she had stood up for King Billy—William III—in telling the person who did not want to take the note that this was her king and his king, and that it really was outrageous. That story has remained with me for all this time, but it has also been an irritant over my nearly 60 years of life. Now I will give way to the Minister.
I thank my hon. Friend. I wonder whether he will tell us which of the genes of that redoubtable woman have survived in him? We could probably guess at a few of them.
One of the things that I learned from my grandmother was always to probe and question. Another was that if I saw a door with “Do Not Enter” written on it, I should open it and go through.
This is a continuing problem, and as I said, it is a growing problem. In the old days, there was much less travel than today. Nowadays, for reasons of business and commerce, people commute between Glasgow and London and Edinburgh and London, and between other parts of the United Kingdom. Earlier today the House discussed the problems of small business. This is a problem for small businesses, which are caused a degree of anxiety because although they may know of the existence of other notes circulating in the United Kingdom, they have to give change to people. The hon. Gentleman gave the example of taxi drivers.
I invite the House to try to be a bit less London-centric. The time will come when someone will indeed turn up in Somerset with one of these banknotes. I sympathise both with the person who has the banknote and with the shopkeeper, who really could do without it, and who will have to put the note aside to be taken to the bank rather than given in change. In such circumstances there is embarrassment and irritation— embarrassment for the person who produces the note, which is probably all that he or she has, and has to try to convince the retailer that it is good money with value, and irritation for the retailer.
There is another issue, of which I have been particularly conscious in the past three or four years. A lot of people currently employed in the retail sector come from other parts of the European Union, and they are desperately anxious not to accept a note that is peculiar and bewildering to them, and on which they have not been briefed—so I fully endorse what the hon. Member for Dumfriesshire, Clydesdale and Tweeddale said about awareness briefing. Such situations can be avoided, as I will illustrate later, but they cause anxiety for employees from overseas—particularly those who work in restaurants and petrol stations—and, of course, for the person offering the note in payment.
I have tackled colleagues on this matter who say, “Well, I have no problem in London.” I am surprised they say that, because we can have such problems in London. I accept that trips only between a London airport and Westminster can be easy and without problems, but these difficulties are far more acute out in the suburbs and in other parts of England.
My wife and I spend a lot of our recreation time, when we get it, in County Down in Northern Ireland, where Scottish banknotes circulate extensively and people know about them. There is, I suppose, a cultural reason for that, relating to the close proximity to Scotland. The situation is worse in Northern Ireland, however, which is why if this Bill progresses, I would wish to amend it to include Northern Ireland. Northern Ireland’s population is, I think, 1.7 million, and Bank of Ireland notes circulate there, along with the notes of Ulster bank, First Trust bank, Allied Irish bank and the Northern bank—Members will recall the Northern bank robbery, which involved Northern banknotes. When I visit Northern Ireland, therefore, I often have the full range of both the Scottish and the Northern Irish banknotes, and when I return to London I invariably find that I do not have a Bank of England note. The first thing I do is go somewhere where the other notes are accepted, such as the Members’ Tea Room, where I ask our good friends, who service us well, if they will change them, or the Members’ post office. If I have returned directly to my constituency, I use them at the Dartford toll, where the people are fully briefed about their existence. I need to change them into either coins or Bank of England notes, because this is a real problem. There are also a lot of machines into which banknotes can be fed, and the parking machine at the shopping centre in Bangor in Northern Ireland does not take Bank of England notes. We therefore need standardisation of both acceptability and technology.
I was also interested to hear the hon. Gentleman give the history of this matter. So far as I recall, the widespread use of Bank of England notes is a relatively recent development, dating back to the time of George V. It was therefore interesting to learn that Scotland developed the culture of using paper notes first. It is dancing on the head of a pin to talk about finer points, such as whether they are tender or promissory notes or whatever; we know what we are talking about. Banknotes have a much longer history in Scotland, and Bank of England notes feature more recently in our history.
It is also important to recognise that the banknotes that circulate in the United Kingdom—this applies to all the Scots and Northern Ireland notes—are a revenue earner for both the issuing banks and, to an extent, the local economies, because there is a considerable number of collectors worldwide. We made a similar discovery when Tony Benn broke the mould with regard to stamps, saying that we must have many more issues of postage stamps, even though the Post Office was very conservative on the matter. The banks that issue notes make money by varying the designs from time to time, as there are very enthusiastic banknote collectors worldwide. That is very nice, and it creates awareness of some of the constituent parts of the UK, as well as being a revenue earner for the banks and for Scotland and Northern Ireland. That should be encouraged.
What is the answer? I am not sure that we need to go to the lengths outlined by the hon. Member for Dumfriesshire, Clydesdale and Tweeddale, but I have a suggestion that would, at least, be complementary. I cannot see why the banks that circulate in the United Kingdom, by which I mean the Bank of England—I include it even though I realise that, as a central bank, it has a different status—the Scots banks and the Northern Ireland banks, could not have all their different designs on one side of a standard-size note, which could be variable. That would be good, and the name of the bank could be included. The certification—the promise that is explicit or implied by the note—could be standard and could be on the other side of the note. That would overcome the problem of forgeries, although not totally. However, in that regard we should remember that, from time to time, we have been inconvenienced by having forged Bank of England bank notes in our pockets.
So on one side of the note would be a standard format indicating that it is a note of use in the United Kingdom—the certification, signed by the chief cashier, and so on—and on the other would be Clydesdale, Royal Bank of Scotland, Bank of Scotland, Ulster bank, Northern bank, First Trust bank, Allied Irish bank and so on. The designs could vary from time to time. It is not rocket science. Of course, the euro coinage has a standard side and a variant relating to the various nations. The coins circulate throughout the EU. Never mind what the Minister’s brief says—I urge her to say that she will take this thought away.
I do understand the sensitivities associated with this issue. The notes with the biggest circulation in the United Kingdom are, for example, Bank of England notes. Some people are London-centric on this issue, but we are talking about the United Kingdom of Great Britain and Northern Ireland: there are four constituent parts. That is not a nationalist, jingoistic point—it is a matter of fact. Just as an aside, you have probably heard me get irritated on other occasions, Mr. Deputy Speaker, by the name Sport England. It should be “Sport UK”, because we are talking about the United Kingdom of Great Britain and Northern Ireland. Let us rejoice in the fact that this is a political, constitutional entity that has at least four constituent parts, three of which have bank notes that identify with England, Scotland and Northern Ireland respectively, and turn it to our advantage.
Indeed, there is tantalising incentive for the Minister. The new bank note could be named after her.
An Eagle—or it could be a Mundell, or a Mundell-Mackinlay, note.
However, it is certainly time that this issue was addressed, and it would be very healthy if such an idea were taken on board. The awareness issue is important, but we can overcome that if we know that there is a common side reflecting the variants of the United Kingdom, and the names of the various issuing banks on the other side.
I commend and support the Bill, and I hope that the Minister will indicate that the Government will reflect on the issues raised by the hon. Gentleman, myself and others.
It is a pleasure to follow the hon. Member for Thurrock (Andrew Mackinlay). His suggestion at the end, which I shall come back to—the standardisation of Scottish bank notes with Bank of England and Northern Ireland notes—might, I think, invoke cries of fury north of the border. However, it has a lot to commend it.
I congratulate the hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) on having the opportunity to introduce his Bill, and on doing so today very lucidly. The intense interest that he suggests supports his Bill north of the border and in the Scottish press is scarcely reflected in the attendance here today by Members of Parliament representing Scottish constituencies, of whom there is not a single one, other than him.
May I advise the hon. Gentleman that, although it is not an event that I would wish to attend, the Scottish Labour party conference is under way in Dundee and in only a few moments’ time the Prime Minister is to address that august gathering?
I am grateful for that intervention, and that is a reasonable excuse. I say that because none of my Scottish colleagues is here for a similar reason—it is the Liberal Democrats spring conference in Harrogate this weekend. The hon. Gentleman gives a perfectly fair response to what I had to say.
I hope that I have always been a very strong advocate of the cultural differences that exist within this United Kingdom—I cherish those cultural and historical differences. I have always been at pains to point out the differences in the Scottish jurisdiction, particularly when I have been plying my trade in home affairs and justice over recent years and ensuring that the Government were aware that what applies in the English jurisdiction may not apply in the same way as, and may be completely different from, what applies in the Scottish jurisdiction or, indeed, in the Northern Irish jurisdiction. I am certainly not the sort of London-centred, English imperialist who suggests that everything should be the same; I do not believe that it should.
The existence of Scottish banknotes and the Scottish issuing banks is a historical anomaly in the context of a single United Kingdom, but it is an interesting one that we should not deprecate. It is a fact and it is very unusual. I intervened on the hon. Gentleman to ask whether he could name another country—jurisdiction is not the term I am seeking; I am trying to think of the appropriate word—within which there are nations, that has such a differentiation. I think I am right in saying that apart from Scotland and Northern Ireland, Hong Kong is the only other place where a private bank, rather than a central bank, issues banknotes for general circulation. The position is extremely unusual.
I fully understand the irritation that there must be for people who use these banknotes daily and expect them to be currency across the United Kingdom but find when they come to England or Wales that they have difficulty using them. We should reduce that irritation as far as possible and try to find ways to ensure that such difficulty is not encountered, but it can sometimes be overplayed. I listened carefully to the story that the hon. Member for Dumfriesshire, Clydesdale and Tweeddale told about Mr. MacLachlan of Inverness and his experiences with the Newcastle Travelex. Travelex is a commercial company, not a clearing bank, so why should it provide a service completely free of charge? What possible interest would it have in changing Scottish banknotes for English banknotes without charging any sort of commission? Why should it perform that service? That is a reasonable question to ask.
I understand why a commission would be charged for changing one currency into another, but this is the same currency; both these banknotes are sterling, so there should be no charge. Reference has been made to the time when 19s 6d was given for a Scottish note. It is entirely unacceptable that within one currency a different amount from what was handed over should be given back. I do not accept at all the argument being made.
I am surprised to hear that, because as I said, the company is not a clearing bank and it has no responsibility in this respect; it is providing a commercial service. It seems to me that it can charge what it likes and if the purchaser does not wish to pay for the service, he must go to bank that will provide it.
Is the hon. Gentleman suggesting that some form of commission or levy should be deducted when people come into businesses in my constituency en route back to England and ask for Scots notes to be changed into English notes because they are concerned about taking Scots notes back to England? As I explained in my speech, such requests have become common because people are worried about possible difficulties. The retailers do not charge a commission, and I am sure that the hon. Gentleman is not suggesting that they should do so.
I am glad that those retailers change the notes, and I do not want to be misinterpreted on this point. Travelex’s only purpose is to change notes, and the hon. Gentleman’s Bill would require it to change notes—albeit of the same denomination—for nothing, and I am not surprised that it politely declines that opportunity, especially in an airport, where it no doubt has other customers to serve. He may deplore that, and I might wish that things were otherwise, but I do not think that a commercial company can be blamed for charging for a service that it provides. That is the essence of a capitalist society.
I hate to labour the point, but surely there is a difference. Travelex charges a commission on foreign exchanges because of the risk of holding foreign currency. Changing Scottish notes carries no risk, so Travelex should reconsider its policy on that matter.
The hon. Gentleman makes a sound argument, which he should put to Travelex. The question is whether the charge is reasonable in all the circumstances, but that is a matter for Travelex. It is a commercial company providing a service, and that is the only point I am making. It has no statutory duty to do so, and it can decide whether to charge for it. The hon. Member for Dumfriesshire, Clydesdale and Tweeddale said that some companies provide the service for free, and I applaud them for their public-spiritedness. It would be good if others followed suit.
I do not want to make it difficult for Scottish notes to be used in England and Wales, because there has been a welcome shift in recent years—or so I understand from talking to Scottish colleagues—especially in London and other major centres. Scottish notes are now more readily accepted. I suspect that the same is true along the border, although I have no evidence for that and my constituency is nowhere near that area. However, I suspect that Scottish bank notes are much more widely acceptable in retail premises south of the border than previously. That should be encouraged. But, and it is a big but, it is a big jump from there to introducing a requirement—I accept that it would be a mild requirement, without draconian measures—that every retail establishment in the whole of the United Kingdom should be happy to accept Scottish notes, in all circumstances, if they are prepared to accept English notes. That has implications for many small businesses in my part of the world, where Scottish notes are very rare.
The hon. Member for Thurrock made an important point, although I did not agree with everything that he said. If Scottish banks are to issue notes, I think—this is a personal opinion—that it is regrettable that they have decided to do so in this commemorative, almost didactic, form. The patterns are designed to promote Scotland or the bank in question, but the variation could cause confusion.
If we were having a debate about a proposal that the Bank of England should no longer produce five patterns for notes but 27, hon. Members on both sides of the House would say, “Don’t be ridiculous—that is a recipe for chaos. Why on earth should we expect businesses suddenly to recognise 27 different patterns on notes in circulation across England, Wales, Scotland and Northern Ireland?” If one added the five Northern Ireland banks and their range of notes, there would be a huge proliferation of patterns on notes in common circulation, making it almost impossible for someone who is not familiar with them to recognise what was a valid note and what was not.
The hon. Gentleman has made a perfectly understandable point about confusion and the proliferation of different sorts of notes. As for the figures, there are 22 different Scottish banknotes, and 17 different Northern Ireland banknotes, not counting commemorative editions which, in some cases, can be circulated. That is the number of different notes that we are talking about in this context.
I am grateful to the hon. Lady. To return to the point I was making, when people are familiar with the notes on a daily basis, the notes do not pose a problem. In Scotland, people dealing with Scottish notes would have no problem recognising those that are in common circulation, even if, rather than the Queen of the United Kingdom, they showed the golfer Jack Nicklaus instead. Some people might expect that to be a joke, but it is not—it is a serious proposal that has been thought up in Scotland to celebrate its national sport and the pre-eminence of golf in Scotland. Nevertheless, if I were sitting in a little shop in Kingsbury Episcopi—I cannot do so, because it has closed down—I would not recognise a note featuring Jack Nicklaus as a familiar banknote, so I would have grave doubts. I would hold such a note up to the light and take a look at it, thus causing the offence about which the hon. Member for Dumfriesshire, Clydesdale and Tweeddale is concerned, as it would not immediately tell me that it was a proper promissory note from a clearing bank of the United Kingdom. I would take great care before accepting such a note.
I would not be equipped with the helpful poster issued by the Scottish clearing bank, and while a queue built up, and the next person waited to buy a pint of milk, I would not have easy access to the internet, to check whether it was right. I would be in some difficulty if I was serving in that shop. That is what concerns me, which is why—I certainly do not intend to oppose the Bill—the implications of the measure require careful consideration in Committee. The hon. Member for Thurrock has suggested a solution that would require a great deal of co-operation between the various note-issuing authorities across the UK to come up with a form of commonality. In the long run, if it were acceptable to the Scottish clearing banks, the people of Scotland, the Northern Irish Banks and the people of Northern Ireland, it would be an excellent idea to find some commonality and recognise that a note was a UK banknote that reflected the nations of the UK as well. That would be splendid.
Yes, it should have a common side, like the euro.
As the hon. Gentleman correctly says, it reflects what already happens with the euro coinage—not the notes. When the euro was being designed, no one suggested that each country should issue its own notes, or that in each country, the €5 note should have a different pattern reflecting the different EU nations that are part of the eurozone. No one would suggest that that was a sensible way of doing business in Europe, and I have my doubts as to whether it is a sensible way of doing business in this country, either.
There are details of the Bill that I am not entirely happy with. It is light on definition. I would have expected at least a clause on definition so that we know what we are talking about. I hope the hon. Member for Dumfriesshire, Clydesdale and Tweeddale will not consider this unnecessarily derogatory, but in some ways the Bill reads more like an early-day motion than a law governing the currency of this country. It does not have sufficient precision in its drafting to be an adequate Act, but I accept that that can be dealt with in Committee. Cross-references to the Banking Bill are needed, apart from anything else.
Indeed. The point that the hon. Gentleman makes is to some extent valid. I sought to keep the Bill as open for discussion as I could. The subject of Northern Ireland notes does not come within the title. I am hoping for a positive response from the Government, with the benefit of their vast resource of draftsmen to assist in taking the Bill forward so that it does not create other difficulties in what we have already identified as a very complicated area.
It is indeed a complicated area. The hon. Gentleman has made a valid point that must be of interest to his constituents and to many other Scottish people who find themselves south of the border with their pockets full of Scottish banknotes issued by banks that we, as English taxpayers, so carefully support. I understand that the issue is important to him. I am simply saying that the Bill is not yet in its final form. It will need careful consideration in Committee. Most importantly, we need to hear what the Minister has to say about it. She may well have more fundamental criticisms, which I shall be interested to hear.
I shall be brief, as we want to hear from those on the Front Benches and give my hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) an opportunity to reply, and I believe there is other business.
I congratulate my hon. Friend on introducing the Bill and on a sterling speech. He is right that businesses should not make a distinction between Scottish and other banknotes issued in the United Kingdom. There has, as we know, been much issuing of banknotes, including Scottish banknotes, over recent days. In this week of aggressive easing, it would be very odd if the Government stood in the way of making it easier for businesses to transact business in Scottish notes. Ministers should end the short-changing of and discrimination against the fine people of Scotland, Scottish businesses and Scottish banknotes.
The hon. Member for Thurrock (Andrew Mackinlay) mentioned doors in a story about his late grandmother, Catharine. Too many Scottish people have for too long faced doors that say, “Do not enter,” and the Bill will open those doors. With the Prime Minister—who is, of course, Prime Minister of Scotland as well—this week issuing a licence to print up to £150 billion of money, much of it in Scottish banknotes, the United Kingdom is entering uncharted waters. That is troubling in itself, but perhaps more troubling because the captain on the bridge of the ship is the Prime Minister—Captain Desperado on the bridge, while the country faces the worst money supply and conditions since the 1930s.
I hope that the Prime Minister will keep one of those £50 Scottish notes that he is printing, especially the Clydesdale bank £50 note, which features the great Scottish economist Adam Smith. The problem at the moment is not so much to do with the production of goods and services as with people’s having access to credit to purchase them, but as we reflect on that note, we realise that cash is king. It is cash and liquidity in businesses both sides of the border that will help us out of the current economic difficulties.
One of the great banknote mysteries of our age is why Adam Smith appears on the £50 note in Scotland but on the £20 note in the rest of the United Kingdom; I do not know whether that is a reflection of the expensive tastes of the Scottish First Minister. The Scottish National party is notable by its absence here today, irrespective of conferences. This is an important issue for Scotland and I am glad that my hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale has taken time on his busy Friday to make the effort to bring in this Bill.
My hon. Friend might be interested to note that although the First Minister of Scotland says that he shares the view that Scottish notes should be accepted in the rest of the United Kingdom, he is firmly of the view that they should not be accepted in Scotland; he is keen to see the introduction of the euro.
Well, the euro is doing pretty well, isn’t it? Perhaps that remark should be followed by an exclamation mark in brackets. I think that introducing the euro would be an error for Scotland and for the United Kingdom as a whole, and I am saddened that the SNP has taken a narrow view and that, rather than trying to help struggling businesses in Scotland—and, indeed, the whole of the country—it is at odds with the stream of public opinion, which is manifest in the many letters to which my hon. Friend referred.
What happens if the quantitative easing, which will include Scottish banknotes, does not work? What if that new supply of money does not improve growth and increase output? It is vital that banks should lend their banknotes, including the new ones about which we have heard today and Scottish banknotes. Whatever the banknotes involved, whether they are printed in Scotland or elsewhere, banks need to lend them. That applies especially now, given that the Prime Minister himself has become the chief cashier. The banknotes that are being printed, including the Scottish ones, need to go into the economy and must not be held back for the future bad debts of banks. Banks should be givers, not just takers, of banknotes, including Scottish banknotes.
I welcome the Bill, which I hope will help businesses on both sides of the border and improve and increase transactions. I hope that it will help provide the liquidity that this nation so needs at the moment.
I congratulate my hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) and shadow Secretary of State for Scotland on introducing the Bill and making an extremely powerful speech in its favour. I should declare an interest: I am half Scottish and half English. My mother is from Edinburgh, so my family has some experience of travelling between the two great countries and seeing first hand the frustrations discussed today about the acceptance of banknotes.
My late Scottish grandfather was called William Brown. In fact, Gordon Brown—although, thankfully, not the one who is Prime Minister—is my cousin. The last time I checked, my cousin Gordon Brown was an electrician living in Edinburgh. However, there is the tantalising possibility that I am related to the Prime Minister. That really would be a turn up for the books.
Curiously, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr. Brown) and Prime Minister has, in 12 years in charge of the Treasury, in fact or in practice, done nothing to solve the problems outlined so eloquently by my hon. Friend. These days, the Prime Minister seems desperate to downplay his Scottish background, so it came as no surprise to see the Government’s efforts during the recent Banking Bill to jeopardise the future of Scottish and Northern Irish banknotes.
I have seen first hand widespread misconceptions about English and Scottish banknotes, sometimes in the most unlikely of places. In 2001, I was in Baku in Azerbaijan, and was surprised to see an exchange bureau quoting separate exchange rates for Scottish pounds and English pounds. Not only were Scottish pounds accepted there, but perhaps because of the large number of Scottish oilmen in the city one received a better rate for “Shotland funtu” than for “Angliya funtu”. It seems strange that notes that are readily accepted in Baku, some 2,500 miles away from Edinburgh, should not be accepted in London, only 332 miles away and in the same country.
The Opposition welcome the Bill, and I again congratulate my hon. Friend on introducing it. That action alone has already done much to raise awareness of the issues surrounding Scottish banknotes. He spoke eloquently for his borders constituents and for all Scotland in his defence of the Bill. He spoke of the difficulties faced and the wounds to national pride sometimes involved, and said that almost everybody from Scotland was affected.
I want to return to my hon. Friend’s example of Mr. Derek MacLachlan at Newcastle airport, who was asked to pay a charge of £3 for converting Scottish pounds into English pounds. It struck me that that individual was being punished twice for having come from Scotland: first, he had no confidence that his Scottish pounds would be accepted in Newcastle, which presumably explains why he went to the Travelex office in the first place; and secondly, a foreign exchange bureau, which normally, and perhaps rightly, charges commission on the basis of the risk of holding foreign banknotes, attempted to charge him commission.
My hon. Friend outlined the proud history of Scottish banknotes. He mentioned the risk in ancient times of losing one’s tongue, which probably struck fear into various hon. Members in this Chamber. He referred to the importance of the notes in building Scottish identity and the flourishing of Scottish culture, citing the example of the 250th anniversary of the birth of Robert Burns and other details. He also mentioned some alarming signs, including one saying that Scottish banknotes were not accepted. Most importantly, he outlined how his Bill would strengthen the Union on the grounds of equality between the two banknotes.
The hon. Member for Thurrock (Andrew Mackinlay) spoke with great knowledge, including personal experience from his family past. He also raised the interesting case of Northern Ireland. We, too, would want that to be considered in more detail in Committee. He raised the interesting possibility that this proposal might excite interest from banknote collectors and be a potential revenue earner. We agree with that. I will come to the issue of tourism in due course.
I was a little confused by the speech of the hon. Member for Somerton and Frome (Mr. Heath). He said that he was not opposed to the Bill, but appeared to be extremely sceptical about its contents. He seemed to say that it is perfectly reasonable for Scottish banknotes to be rejected in England.
Perhaps the most interesting speech was the one that was not made. My hon. Friend the Member for The Wrekin (Mark Pritchard) pointed to the absence of any Scottish National party Member. We heard about the Scottish Labour and Scottish Lib Dem conferences that are going on this weekend, but if there is some kind of SNP conference, nobody seems to be aware of it.
South of the border, many people are a little perplexed, or sometimes pretend to be, when they come across these banknotes. It is about time that their acceptability in shops, pubs and restaurants was given some legal recognition, because there is no reason for people in England and Wales to have any doubt about them. Besides adding a welcome dash of variety, Scottish notes are backed pound for pound by assets held at the Bank of England. Those assets are held in the form of special notes known as Giants and Titans, each worth £1 million and £100 million respectively. The average shopkeeper might be rather more suspicious of one of those notes than any Scottish note, but it seems that the Bank of England is fortunate enough to be able to print money whenever it wants to do so—rather a lot of it at the moment, with this so-called quantitative easing.
I believe that suspicion about Scottish notes owes more to unfamiliarity than to anything else. I suppose that it could be argued that some smaller outlets would find it harder to spot fakes if they were made to accept Scottish notes. However, that argument shows a lack of willing. Clear images of every banknote design can be found on the website of the Committee of Scottish Clearing Bankers, which even sports banknote tutorials to train staff on how to pick out any forged notes. Unfamiliarity can relatively easily be overcome, and it should be.
As my hon. Friend the shadow Secretary of State for Scotland noted, all good Unionists should support these measures. No one in Scotland, or anywhere else, should be left to feel that their banknotes are somehow second-rate or inferior. Notes can surely operate side by side in the same way as the constituent parts of the UK. The Bill is important also for UK tourism. We need more people to visit both Scotland and England, and it would surely help to remove any doubts that they might have about banknotes. The great variety of notes in the UK also boosts interest in visiting all its constituent parts.
The Bill’s provisions would not be overly draconian or burdensome on businesses if they were sensibly enforced, which I believe they would be. Under the criteria set out in clause 2, at first a business will simply receive a letter after three reports of refusal. It will face investigation only if it displays a persistent pattern of behaviour, and rather than take it to court, the Office of Fair Trading will take sensible enforcement measures such as requiring it to display a notice for the benefit of customers.
Legitimate concerns about forgery are also addressed in my hon. Friend’s Bill. As I said, it is fairly straightforward for anyone to clarify whether a note is genuine. Under clause 3, a business would still be able to refuse any note that it had reasonable grounds to suspect. The Opposition warmly welcome the Bill. We believe that it could be further improved in Committee, and we hope that it receives the further parliamentary consideration that it so much deserves.
We have had a fascinating debate about a vibrant and lively part of our monetary culture, of which we are all proud. I congratulate the hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) on his selection in the ballot—which I have never managed in all my years in Parliament, many of which have been spent on the Back Benches—and on getting the Bill to the Floor of the House. It clearly represents the concerns and experiences of his constituents and many others in Scotland, as he vividly demonstrated. We discussed Scottish banknotes in connection with the recent Banking Bill, and I understand how frustrating and potentially embarrassing, inconvenient and annoying it is if someone’s money is refused by retailers, even though it is UK money.
The hon. Gentleman made many important points, and his Bill is intended to address the acceptability of Scottish banknotes. I am sceptical that a legislative vehicle is the best way to solve the problems that he outlined, and I remain to be convinced that the Bill, as drafted, would solve the problem. I know that, as he said, he has spoken to my right hon. Friend the Secretary of State for Scotland, who shares his concerns and is also keen to safeguard the long-standing tradition of Scottish banknotes.
I believe that there are some effective ways forward, which I hope to outline to hon. Members, that will begin to put right some of the inconvenience and embarrassment that the hon. Gentleman’s constituents experience south of the border when attempting to spend what are, after all, pounds sterling.
The Exchequer Secretary mentions embarrassment. Given that, even as we sit here, the largest number of Scottish banknotes in United Kingdom history is being printed, is it not incumbent on the Treasury to send a Minister to the House, either later today or on Monday, to make an urgent statement about quantitative easing and the billions being spent—
Order. The hon. Gentleman knows full well that that is not the subject of the debate. I do not encourage the Minister to respond to that intervention.
I always like to respond to questions that are put to me in the House, but I hear your comments, Mr. Deputy Speaker. I say only that it is wrong to believe that Scottish—or, indeed, any—banknotes will be printed as a result of the measures that the Bank of England set out yesterday.
I would like to explain the reasons behind the Government’s position, especially our scepticism about some of the enforcement methods that the Bill proposes. The issuance of national banknotes is usually a function undertaken by the central bank, which is the Bank of England in the United Kingdom. As the hon. Member for Somerton and Frome (Mr. Heath) said, with the exception of Hong Kong, the UK is highly unusual in allowing several commercial banks to issue their own banknotes.
I note that the Bill relates only to Scottish notes, but, of course, as my hon. Friend the Member for Thurrock (Andrew Mackinlay) pointed out, there are also four commercial issuing banks in Northern Ireland. I hope that the hon. Member for Dumfriesshire, Clydesdale and Tweeddale will forgive me if my remarks cover both jurisdictions. I do not think that making a distinction between them is appropriate, as it sets up an unnecessary two-tier system. We may have some positive effects on the practical problems that he outlined if we consider the two jurisdictions together.
This right to issue is set out in the Bank Notes (Scotland) Act 1845, the Bankers (Ireland) Act 1845 and the Bankers (Northern Ireland) Act 1928. Parts of legislation will be repealed and replaced by part 6 of the Banking Act 2009. It modernises and strengthens the regime for note issue, which is more than 160 years old.
Currency, legal tender and banknotes are specifically reserved to the UK Parliament under the Scotland Act 1998, and are excepted matters under the Northern Ireland Act 1998. They are, therefore, matters on which the UK Parliament continues to legislate after devolution.
The Bank Charter Act 1844 prohibited any new banks in England and Wales from issuing banknotes. The 1845 legislation in Scotland and Ireland makes similar provision for banks in those nations. At that time, a total of 21 banks applied to become certified to continue issuing banknotes in Scotland and Ireland. As the hon. Gentleman said, that number has reduced over time through mergers, insolvency, or by banks choosing simply to stop issuing, to a total of seven issuing banks today. As my hon. Friend the Member for Thurrock said, in Scotland they are: the Bank of Scotland, which is a subsidiary of Lloyds Banking Group; Clydesdale bank, which is a subsidiary of National Australia Bank Ltd, and the Royal Bank of Scotland. In Northern Ireland they are: the Bank of Ireland; Allied Irish Banks Group (UK); Northern bank and Ulster bank. I confirm that the Government are committed to maintaining that long-standing tradition of commercial banknote issuance in Scotland and Northern Ireland, and are not seeking to discourage those commercial issuers of banknotes from continuing that practice.
The hon. Member for Somerton and Frome mentioned retailers in Somerset and I note with interest an odd coincidence. The last private bank to issue notes in England and Wales was a Somerset bank—Fox, Fowler & Co., which issued its final notes in 1921. The hon. Gentleman might want to look around some of the shops in his constituency to see whether he comes across a few examples of those banknotes and to contemplate the role that Somerset has played in issuing banknotes in England.
The hon. Member for Dumfriesshire, Clydesdale and Tweeddale is seeking to address genuine issues with his Bill. When we talked before today’s debate, he gave me examples of where Scottish notes had been refused. I have heard examples anecdotally from my Scottish colleagues on the Government Benches many times, and the point has been reflected in all the contributions that we have heard this afternoon. The problem manifests itself in many different forms, not all of which are addressed by the Bill. It occurs to me, both from the anecdotal evidence the hon. Gentleman has presented and from the evidence that I have come across, that the problem tends to manifest itself more often in areas where such notes are less common and are seen less frequently. The issue is unfamiliarity with the notes, as the hon. Members for Somerton and Frome and for Hammersmith and Fulham (Mr. Hands), speaking from the Opposition Front Bench, both mentioned.
There are 22 different Scottish banknotes in circulation and their designs—I have pictures of them here—are beautiful, interesting and varied. Many of them are collector’s items. One can add to that the 17 different bank notes issued in Northern Ireland. That creates a plethora of notes, which can cause consternation in areas where they are not seen regularly and where people are not familiar with them, even though they are perfectly safe and backed by Bank of England deposits. That unfamiliarity is one of the problems that we must deal with.
If we are trying to deal with unfamiliarity, the web should be the first port of call. However, people have to go on it, but often small traders do not have the time, and certainly not in the shop. If something odd turns up—something with, say, a depiction of Jack Nicklaus on it—one might think that it was not a real note. Indeed, it might give one pause. However, before we resort to the legislative sledgehammer, we should think about whether we can come together to put in place a campaign that would encourage the many retailers in this country to become more familiar with the different banknotes that they may, perfectly safely, take in payment.
Scottish banknotes circulate widely in Scotland and in those areas that are close to the border with Scotland. Also, Scottish banknotes tend to be more readily accepted in other centres of significant interchange of people between England and Scotland, such as airports. Familiarity is clearly one of the keys to improving the problems that the Bill seeks to address.
It is clear from the work that we did on the Banking Act 2009 that there will no longer be any legitimate worries about backing assets that stemmed from the rather old legislation—it is 160 years old—that was brought to bear in backing both Northern Ireland and Scottish banknotes until the passage of that Act. The changes that will come into effect later this year will ensure not only that the backing arrangements for those notes will confirm that they are risk-free and that they have the same backing as Bank of England notes, but that although some might think that those issues are an excuse for not accepting such notes—there might have been a technical reason for arguing that before the passage of the 2009 Act—that will no longer be a legitimate worry. The level of protection involved will be similar to that given to holders of Bank of England notes, and, in the event of an issuing bank failing, those who end up with the notes in their possession can expect to obtain full face value. That should close any loopholes that businesses might have used as an excuse for not accepting Scottish banknotes.
A further difference between Bank of England notes and commercially issued notes relates to the fact that commercial banks have control over certain elements of their own banknotes that might be material to acceptability, and that might differ from the approach taken by the Bank of England. One of those elements is the design of the banknotes, as my hon. Friend the Member for Thurrock said in his extremely thoughtful speech. It is reasonable to assume that the more designs there are in circulation, the less familiar people will be with them. We have looked at the numbers involved, and I note that, while there are 39 Scottish and Northern Irish banknote designs in circulation, there are just five Bank of England notes. One of the Bank of England notes, the Edward Elgar £20 note, is going through a transitional period, and is in the process of being withdrawn, to be replaced by the Adam Smith £20 note.
The Bank of England’s policy is to have one current series of banknote design per denomination—two when transitioning from one design to the next—and to withdraw old series from circulation. This has the benefit of minimising confusion among holders of the notes, because there are fewer designs to recognise and remember. It also reduces the risk of counterfeiting, because people become more familiar with the anti-counterfeiting features on the notes, which can often differ from one generation of note to the next.
None of the commercial banks in Scotland or Northern Ireland withdraws its previous series of notes from circulation, which leads to a much greater number of different designs passing around the country at any point in time and with varying anti-counterfeiting features on them. It might therefore be harder for businesses and the public at large to know exactly what a genuine Scottish banknote should look like, just because there are more variations in circulation. People should not be blamed for this; it just goes back to the question of familiarity, which has been recognised as an issue by hon. Members on both sides of the House.
The hon. Member for Dumfriesshire, Clydesdale and Tweeddale referred to the use of a fancy pen. They are good as far as they go, but it is important to stress that the anti-counterfeiting features used within a banknote often vary across issues, series and denominations. For example, the new Adam Smith £20 note includes a holographic strip not featured on its Edward Elgar predecessor. New anti-counterfeiting features are always being developed, but the rate at which they are adopted varies across issuers as they almost always increase the production cost of a note. An unfortunate consequence of this lack of uniformity means that an anti-counterfeiting check carried out by a business for one note—such as the Adam Smith note with the holographic strip—might not be suitable for another note. This problem might also be compounded by the number of different types of notes in circulation at any given time.
There is also the question of denominations. Traditionally, all the Scottish issuing banks have chosen to issue £100 banknotes, which the public might be less willing to accept as payment. In a similar vein, the Bank of England £50 note is not commonly found in circulation, and therefore when people come across them they are often more circumspect about accepting them. All these elements—banknote liabilities and the backing asset regime, the number of different note designs and security features in circulation, the level of educational activity undertaken, and differing policy regarding denominations—might influence the acceptability of Bank of England notes, compared with commercially issued notes.
It is important for us to consider, ahead of a legislative process, the issue—
Will the Minister give way?
Let me just finish this point about the technical standards board, because it is really important that I make it.
On a point of order, Mr. Deputy Speaker. It appears that the Minister will not accept my intervention so that it will not appear on the record that I was challenging her for talking my Bill out.
I call Angela Eagle.
It is really important to recognise that a great deal can be done to achieve the hon. Gentleman’s aims, which we all support, short of introducing draconian legislation. I want to work closely with him and with others—
The debate stood adjourned (Standing Order No. 11(2)).
Ordered, That the debate be resumed on Friday 13 March.
Business without Debate
presumption of death bill
Motion made, That the Bill be now read a Second time.
Bill to be read a Second time on Friday 27 March.
exercise of reasonable discretion bill
Motion made, That the Bill be now read a Second time.
Bill to be read a Second time on Friday 27 March.
use of the chamber (United kingdom youth parliament)
That this House welcomes the work of the United Kingdom Youth Parliament in providing young people with an opportunity to engage with the political process and bring about social change; notes that many hon. Members from all parts of the House are actively involved in the work of the UK Youth Parliament; and accordingly resolves that the UK Youth Parliament should be allowed for this year alone to hold its 2009 annual meeting in the Chamber of this House.—(Helen Jones.)
Alfred Sargent and Sons Ltd
Motion made, and Question proposed, That this House do now adjourn.—(Helen Jones.)
I am extremely grateful to Mr. Speaker for granting me this Adjournment debate at such short notice. Mr. Speaker has a well deserved reputation for his concern about people losing their employment. I am extremely pleased and delighted that the Minister is in his place to answer this debate, as he is well known for his willingness to listen to constructive arguments and to enter into debates. He is also well known for being wheeled out when there is a difficult problem. I hope he is here today for the first rather than the last reason.
It is not my intention to blame the Government for what I see as a gap in the national law. If a Conservative Government were in power today, I would still rise to press this issue. It is not party political; there is a gap in the law and it needs to be put right. The issue involves 40 hard-working men and women who lost their jobs in December last year and have been out of pocket ever since through no fault of their own; they are still out of pocket.
Let me start by setting out the background to the problem. The Wellingborough constituency consists of two main towns, Wellingborough and Rushden, and a small number of smaller villages. The constituency lies in the east midlands region or at the extreme south of the east midlands located to the east of the M1. Historically, the Wellingborough constituency has been a prosperous area built around the boot and shoe industry, gaining national and international recognition for its products.
Over the past decade, however, manufacturing industry in my constituency has gone into a nosedive with shoe factory after shoe factory closing. If we take Rushden alone, we see that there were 106 shoe factories there in 1920; as late as 1973 there were still 40 shoe factories; today, we will find just five. For anyone wishing further information about the shoe trade in Rushden, I would recommend the website www.rushdenheritage.co.uk.
The decline in manufacturing has been a national disgrace. If I were to be critical of the Government in this debate, I would refer only to their over-reliance on banking and financial services at the expense of manufacturing industry, which has been a total disaster. We need think only of the billions of pounds thrown at the banking and financial sector at the most enormous cost to each man, woman and child in the country to see the folly of that policy. If only a small percentage of the taxpayers’ money now being thrown at the banking industry had been directed towards making the lives of manufacturing companies any easier, we would now be in a far better position and there would be no need for today’s debate. I said at the start that I was not going to be political in this debate, so it would be wrong for me to make that point.
It is fair to say, however, that the economic boom bypassed Wellingborough. Unemployment in the area is now much higher than it was in 1997: at the end of January, 2,708 people were on the unemployment register, whereas in January 1997, there were only 2,144. Unemployment in my constituency has gone up by more than a quarter.
That sets the general background to the debate. Let me now talk about the specifics. Early in December last year, I began to receive complaints from constituents who had been employed by Alfred Sargent and Sons Ltd in Rushden. They had been made redundant, but had not received any redundancy payments, although the company continued to trade. Losing one’s job is hard enough, but not receiving redundancy payments was very worrying for the people who had contacted me, particularly as it was just before Christmas. The situation was covered extremely well by my excellent local newspaper, the Northamptonshire Evening Telegraph, which kindly published an article reflecting my concern and suggesting that affected workers should contact me directly.
I want to make it very clear that I make no criticism whatever of Alfred Sargent and Sons Ltd, its board of directors, or any of its work force. The company was faced with an extremely difficult Catch-22, and dealt with it as best it could. At the end of the story, there is some good news: Sargent’s has streamlined and continued to trade, and I understand that its prospects of success are extremely good. My aim today is not to criticise the company, but to expose a loophole in the law. Nor do I intend any criticism of the Government, who may well not have been aware of the loophole.
I should also point out that Alfred Sargent and Sons Ltd was not some fly-by-night organisation that had existed for only a few years. It was founded in 1899 in Rushden, and was a family business that had passed through four generations based in Portland road. It produced high-quality footwear using traditional techniques. The view of the factory from the road has changed very little in more than 100 years. This was a traditional family business, producing high-quality goods and refusing to cut corners; but it was hit by the extraordinary recession that faces us today, and given unhelpful banks and falling demand, its position became impossible.
As someone who has run a small family business and has had to make employees redundant, I know that it is the worst thing that a boss ever has to do, but sometimes a boss is faced with the dilemma that if he does not reduce his work force, the whole company will go under. In a small family company, the boss’s employees are his friends and part of his extended family, and to tell them that they have no job is extremely difficult. In the case of Alfred Sargent and Sons Ltd, it must have been even more difficult. Many of the workers had been employed by the company for many years, as many as 20 years in some cases. A boss does not make the decision to lay such people off lightly. It is heartbreaking, and extremely difficult.
Why do companies go bust? Is it because they are running at a loss? No, that is not the reason; the reason is that they run out of cash. They may be highly profitable, but if they have no cash they will go bust. Equally, they can run loss after loss, but if they have substantial cash or loans they can continue to trade.
This is the dilemma for Sargent’s. It has a work force of 120 people. If the company lays off 40 of them, it can save £600,000 a year in cash and continue in business. If it does not lay the staff off, that extra £600,000 will force the company to go under. Reluctantly, the boss is forced to make the employees redundant. But here is the Catch-22. As he has been a good employer and run an excellent family company, his employees have been with him for many years, some for more than 20. The cost of redundancy, if the company had to pay it, would be a quarter of a million pounds. That would bring the whole company down, with the loss of an additional 80 jobs and, of course, one less high-quality manufacturing company.
This situation is not adequately covered by current regulations. Of course, if the company in its entirety went into liquidation, the Government would immediately pay everybody their redundancy money from Government funds. Alternatively, if a large public company lays off people to make itself more profitable, it is required—and it should be—to pay the redundancy money from its existing assets. However, for a small family company trying to soldier on under the current law, the situation is a mess.
Let me take this opportunity to read a letter I received from the Minister for Employment Relations and Postal Affairs, which sets out the current law—and I must say that it reveals the current law to be an ass.
Thank you for your letter of 12 January, about employees that have been made redundant from Alfred Sargent and Sons Ltd of Portland Road, Rushden, NN10 0DQ.
As I said in reply to your question on 11 December 2008”—
I was able to ask an oral question in the Chamber—
“there is a scheme administered by the Insolvency Service to assist employers to meet the costs of statutory redundancy payments against an agreement from the employer to reimburse the National Insurance Fund over a period of time. The scheme is administered by the Insolvency Service’s Redundancy Payments Offices (RPOs). To date no application for assistance has been made by Alfred Sargent and Sons Ltd.”
I will return to that sentence letter, as it is crucial to my argument.
“I understand that one ex-employee made a claim for payment to the Birmingham RPO. As the company has not applied for assistance, the RPO had no legal basis under which to make a payment to that employee. She has been advised of her right to take employment tribunal action in respect of the payment owed to her by the company.
It may be helpful if I explain that legislation places the primary responsibility for making redundancy payments on employers. However, I hope your constituents take some comfort from the fact that, under provisions contained in the Employment Rights Act 1996, the RPO can take over that responsibility if either the employer qualifies for assistance under the Financial Difficulty Scheme, or is legally insolvent as defined under the 1996 Act, or has failed to comply with an employment tribunal award. Consequently, if your constituents obtain an employment award and Alfred Sargent and Sons Ltd do not pay it, the RPO would be able to pay any statutory redundancy payment due. The RPO would then seek repayment from the company.”
The letter continues, but those are the main points, and it is signed by the Minister for Employment Relations and Postal Affairs at the Department for Business, Enterprise and Regulatory Reform.
What does all that mean for the former employees of Sargent and Sons? It means that they can get their money through only two methods. One is to approach the employment tribunal service, and then to fill in a complicated 12-page form, of which I have a copy with me. I am a fellow of the Institute of Chartered Accountants in England and Wales, and I would find it difficult to fill in this form and answer all these questions correctly, let alone someone with no financial background who has just lost their job. I have had three mass meetings with the people laid off by Sargent, and I found it incredible to learn that the jobcentre was not interested in this problem. Its basic view was, “We’re here to find you a new job and organise your jobseeker’s allowance. A different department deals with redundancy payments. It is nothing to do with us.” So, these people are left with a difficult form—which they first have to find out that they need—that they then have to submit, and somewhere down the line there is an employment tribunal at which they will be awarded a claim for redundancy payment. Only after that can the RPO enforce the claim. In practice, in this case, the redundancy money due in December to the ex-employees of Sargent and Sons will not be paid until June this year—more than half a year after they were entitled to it. That is a highly bureaucratic and unsatisfactory way of dealing with redundancy.
The second way in which the ex-employees could have got their money was if their company had approached the RPO under the financial difficulties scheme, negotiated with it, been investigated by it and, eventually, the RPO had paid the redundancy money and agreed a schedule of recovery from Sargent’s. That sounds good on paper and sounds like it would have solved the problem. However, for a family company fighting for its survival, that option is a non-starter.
Anyone who has ever fought to keep their company going through a difficult time, with cash-flow difficulties, knows that people in that position have to work every minute of the day and night to find a solution. They have to deal with problem after problem—problems that never had to be dealt with before—and probably have to put their own money into the company to keep it going. They are negotiating with banks, suppliers and customers, as well as trying to keep the company running in an orderly manner.
To believe that a family business in that position has the time to negotiate with a Government Department is to live in cloud cuckoo land; yet the law says that the RPO cannot approach the company and offer it help, as we read in the ministerial letter that I quoted from. The RPO has to be approached by the company. In several of my discussions with the regional RPO, I suggested to the lady there, “Pick the phone up, ring the company and tell them what you can do for them.” She said, “I would love to do that, Mr. Bone, but the law prohibits me from doing it.”
Before saying what I think the Government should do and how the law should be changed, I did promise a happy ending to my story. Last Thursday, at 3.50 pm, Alfred Sargent and Sons went into administration, but since then the management have bought the assets of the former company and it is trading successfully, with 80 employees, and the future looks encouraging. The employees who lost their jobs have been issued by the administrator with an RP1 form, which will entitle them not only to their redundancy money but to any arrears of pay and holiday pay and, ultimately, to pay in lieu of notice. That will all be paid by the Government, and I understand that it should be done within about a month.
So for those employees, who have acted in a very restrained and responsible manner throughout what has been a very difficult few months, there is at least light at the end of the tunnel. However, they should never have been placed in this position. They should have received their redundancy money as soon as they were laid off. I do not blame the Government, because I do not think that they realised that there was this unusual—but I guess now not uncommon—problem. If a family company continues to trade but has to lay people off so that it can survive—as in the case of Sargent and Sons—it should not be those who are laid off who suffer and bear the burden. In my view, the Government should step in and help.
The law needs to be changed so that the RPO can be proactive when a company is about to make people redundant. It should pay the redundancy money as if the company had gone into liquidation, and then seek to recover it from the company over a period of time. Under that scheme, the Government would not be any worse off, and could be better off.
In that context, let us consider the case of Alfred Sargent. The company has now gone into administration and the Government will have to pick up the tab, so they might as well have given the redundancy payments to the Sargent workers in mid-December. The Government would not have been any worse off. In fact, they might have been better off because, had the original company survived, they would have got their money back over a number of years.
I appreciate that this would be a minor change to the law and that it would not be applicable in many cases, but in the ones to which it does apply it would save jobs and protect workers’ rights. I look forward to hearing from the excellent Minister. I hope that he will be able to take on board my comments and seek ways to improve the situation. I stress again that I am not criticising the Government at all, but I believe that they have an opportunity to solve a Catch-22 problem. I assure you, Mr. Deputy Speaker, that even if the Minister cannot help me, I do not have any green custard.
I congratulate the hon. Member for Wellingborough (Mr. Bone) on securing this debate and compliment him on the vigorous way in which he always stands up for his constituents’ interests and the thorough way in which he analyses issues.
I shall touch on the points that the hon. Gentleman made about whether there is a loophole in the legislation and whether the redundancy payments office ought to be more proactive, and about paperwork and form-filling, but may I first offer a few general comments, as he did? Let me refer first to the Northamptonshire economy. The employment rate is 81.6 per cent., which is high, and the gross value added per head has consistently been above the regional and United Kingdom average since 1996. I understand that the jobseeker’s allowance claimant count in Northamptonshire is 3.3 per cent. The county is suffering from the recession, just as other counties and regions in the UK are at the moment. I note that a job fair is taking place today in Kettering town centre and that Jobcentre Plus is providing support to a number of people who have had to suffer redundancies in companies in the Northamptonshire area.
The hon. Gentleman will probably be aware that the Prime Minister launched the booklet “Real help for the East Midlands” in Northamptonshire on 13 February. It signposts practical help from the Government to support businesses and families. The Minister for the East Midlands, through his regional economic cabinet, has set up a cross-agency redundancy response group, providing a wide range of assistance for businesses and individuals across the east midlands. The group includes Jobcentre Plus, the regional development agency, the Learning and Skills Council and ACAS. The LSC and the careers service are both supporting people to retrain in Northamptonshire through schemes such as Train to Gain. As he will be aware, a number of plans are in place, such as improving the A14, which runs through the north of the county.
The hon. Gentleman will also be aware, because we have debated this on a number of occasions, that in response to the worsening economic situation the Government have put in place a range of measures to support business: the enterprise finance guarantee, which helps companies with a turnover of up to £25 million by providing a loan of up to £1 million over a flexible period, of which the Government will guarantee up to 75 per cent.; the working capital scheme, which we hope to introduce very shortly; and the help that we are offering the automotive industry—a number of components companies are located in Northamptonshire—through the automotive assistance package.
I shall now refer specifically to some of the comments that the hon. Gentleman made about Alfred Sargent and Sons Ltd and the situation in which the workers have found themselves. This well-established footwear company, which is based in Rushden, Northamptonshire, has been going through difficult times. I was pleased that he ended on a positive note by saying that the company has risen from administration and looks to have brighter prospects. We all welcome that. It is clearly regrettable when anybody loses their job and has to be made redundant in the economy. The first thing that the Government seek to do, under our active labour market policies, is provide rapid response help through Jobcentre Plus, to try to ensure that we can get them training and jobs as quickly as possible.
The situation with Alfred Sargent and Sons, as the hon. Gentleman explained, is unusual. It is my understanding that some 30 workers were made redundant at the end of November, and since then they have been pursuing wages, holiday money and redundancy payments. At the beginning of December, they were paid one of the weeks’ wages that they were owed, but they have not been able to obtain the rest of their money from the company.
Business Link East Midlands had contact with the company in October 2008 and recommended that it pursue a range of support products, including a regional development agency business transformation grant, which would involve bringing in a business specialist. It also recommended accessing the transition loan fund, which is a temporary cash flow loan available through the regional development agency. It further recommended contacting the Manufacturing Advisory Service for the east midlands, which can provide hands-on support for companies. I am not aware that the company took those offers up, and it obviously had other things on its mind during a very difficult time.
The hon. Gentleman read out a letter he received from my right hon. Friend the Minister for Employment Relations and Postal Affairs. As the hon. Gentleman will be aware, at that time the company was not formally insolvent, and since then an insolvency practitioner has been appointed. At that time, therefore, the redundancy payments office was unable to help. However, there are rare specific circumstances in which the RPO may be able to offer help to those companies making redundancies prior to becoming insolvent. That is the nub of the issue, and where the hon. Gentleman sees a loophole.
The RPO wrote to the company asking whether it wanted to take advantage of its support, so to that extent the RPO was proactive, as the hon. Gentleman enjoined it to be, but it was the company that decided not to pursue the issue.
I appreciate that the RPO did contact the company, but that was only after I badgered it to do so, and it broke its own rules in doing so.
I am interested to hear the hon. Gentleman say that. My understanding is that the RPO can contact companies in that situation, but it is up to companies to contact the RPO and say that they want to take up the offer. In this case, the company did not do so. It is regrettable that the company had to decide to make the workers redundant, although that was a commercial matter for the company. I have had to make people redundant in the past, and it is the worst thing that one ever has to do as a manager. Nobody in their right mind relishes doing it.
I will ask my officials to get back to me and to my right hon. Friend the Minister for Employment Relations and Postal Affairs on the specific question of whether there is a loophole in the law. It is clearly the case that in rare circumstances the RPO can offer help prior to a company becoming insolvent, but the question whether that has to be triggered by a request from the company or can be offered by the RPO is an interesting one. We can perhaps explore whether there is more we can do to help. I will also ask my officials to consider the paperwork and form-filling that is involved, to ensure that it is proportionate and reasonable in the circumstances.
We live in incredible times. We face a recession that is of a different nature from any that I have lived through. We are taking some extraordinary action as a Government, and we need to continue to have an open mind and do all that we can to help those who are unfortunately being made redundant and to support viable businesses to get them through these tough economic challenges in the best possible way.
Question put and agreed to.