Mr Major’s Intervention in Small Business Debate – 14 December 1979

Below is the text of Mr Major’s interventions during the Small Business debate, made on 14th December 1979.

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Mr. Foulkes I thank you. Mr. Deputy Speaker and my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris). It has been noticeable that the Government business managers have been wheeling in one Conservative Member after another to enable the debate on the first motion to continue and to ensure that we do not get on to the second topic.

Mr. John Major (Huntingdonshire) rose –

Mr. Foulkes It is regrettable that that situation should arise. –

Mr. Major rose –

Mr. Deputy Speaker Order. We cannot have two hon. Members on their feet at the same time.

Mr. Foulkes It is most regrettable that this situation has arisen. Those outside will not understand it.

Mr. Major The hon. Gentleman has made a most unfair attack. One of his hon. Friends spoke for 36 minutes, and it was sheer, dire, verbal anaesthetic for us all. He intervened five times and has now gone home. It is disgraceful to accuse the Conservative side of the House of trying to pack the debate.

Mr. Deputy Speaker Shall we attempt to get back on course? The hon. Member for South Ayrshire (Mr. Foulkes) should not go into what people outside are thinking but should relate his remarks to the motion under discussion.

Mr. Foulkes I have made my point, Mr. Deputy Speaker.

The national concessionary fare scheme which the previous Government intended to introduce would have enabled many old people to get to small businesses and would have helped those businesses to prosper more, since old and disabled people would have been able to get to them without having to pay extortionate and ever-increasing fares. That is relevant to small businesses.

I also mention the Government’s public expenditure cuts, because they relate directly to the motion. The public expenditure cuts which local authorities are having forced on them by the Government result in local government having substantially to cut grants to voluntary organisations. The Conservatives are guilty of a dangerous piece of double-think on this issue. They are cutting back the money made available to local authorities, which means that the statutory provision in terms of home help and meals on wheels services is having to be reduced. But then they suggest that the voluntary organisations might be able to restore those services and that more should be done by voluntary effort.

That is a strange attitude for Tories to take. There are services which the voluntary organisations rightly and successfully can provide, but they do not include those which the statutory organisations are at present unable to perform, and it would be wrong if they tried to provide them.

The irony is that, because the Government are pressing local authorities increasingly to save money, cuts are being made to the very voluntary organisations which might improve and develop the services. If I had been able to speak at greater length, I should have pointed to a number of examples of local authorities – including those of Newcastle, Oldham and Leicester, and in other parts of England as well as in Scotland – which are being forced to reconsider their grants to the voluntary organisations.

The voluntary services are suffering because of this Government, and that is why my motion is so relevant to that moved by the hon. Member for Devon, North.

Another aspect is that old and disabled people are suffering from inflation. The Government have almost doubled the rate of value added tax. This affects old people, and it affects small business men even more. It means that old people have to pay hugely increased costs for clothes, household goods and services which are vital to them. That in turn means that small business men find it difficult to maintain their trade.

The Government’s economic policy is affecting small business men adversely. It is affecting the elderly and disabled equally adversely. In my view, it is totally unnecessary. The Government say that our national borrowing is too high. In reality, however, our public sector borrowing requirement is lower than that of many other countries which are more prosperous. It is lower in real terms than when the Conservatives were last in power. The Government say that we spend too much on the public sector. I can tell them that we spend less than most of our partners in the European Community.

What makes the misery of old people who face the coming winter even worse than it would otherwise be –

Mr. Deputy Speaker Order. The hon. Gentleman must not go into that.

Mr. Foulkes Without going into that, Mr. Deputy Speaker, what makes the plight of the small business man worse than it otherwise would be is that the Government’s economic policies are totally unnecessary. That is why the future looks even more miserable than ever.

Mr. John Major (Huntingdonshire) I begin by congratulating the hon. Member for South Ayrshire (Mr. Foulkes) on his brevity. It is a refreshing change today. I was very pleased that he bore in mind the fact that there are other hon. Members waiting to speak. I shall follow his good example and be relatively brief.

I cannot proceed, however, without congratulating my hon. Friend the Member for Kingswood (Mr. Aspinwall) on his excellent maiden speech. He spoke most movingly on the subject of voluntary service. It is clear that he has a great affection for the principle. I am sure that we all look forward to hearing him on that and other subjects on many other occasions in the future.

I know that my hon. Friend, as we all have done, has agonised over his maiden speech. I was advised by an hon. Lady when I was agonising over my own that making a maiden speech was rather like having a baby: it was terrible before-hand, it was an awful effort during delivery, but one got a marvellous night’s sleep afterwards. After his splendid speech, I am sure that my hon. Friend will sleep very well tonight.

We have come a long way since the principle of the 1960s when the fashionable philosophy was that big was beautiful. Over the years, we have come to recognise the value and to understand the problems of small business rather better. However, I am afraid that we recognise the value and understand the problems rather better than we have got round to finding solutions to the problems.

Having sounded that rather sour note, I think that we should not undervalue what has been done, especially in recent months. If business men had been told in March of this year that by Christmas the Government would have cut income tax substantially at all levels, eased the investment surcharge, development land tax and stock relief, raised the level at which corporation tax started and, notwithstanding the rate being as high as 15 per cent., introduced a single rate of VAT, I think that they would have been both astonished and delighted.

In that connection, perhaps I might take a moment to pay a sincere tribute to my hon. Friend the Under-Secretary of State for his remarkable work in Opposition to advance the cause of small businesses. Government supporters are delighted to see him in a position where he can put all his work to good effect during the months ahead.

To be strictly fair, if we had also said to small business men that there would be a 17 per cent. minimum lending rate, they would have found much of their delight ebbing away. I do not propose, having spoken on the subject before, to be seduced, so short is time, down that road in any detail. It is my conviction, contrary to what I thought – if it is not unnecessarily provocative to say so – was the economic drivel of the hon. Member for Vauxhall (Mr. Holland); that interest rates cannot fall until and unless public expenditure falls and remains at a lower level than in recent years.

I wish to turn to a practical problem that has been brought to my notice in a number of ways in recent months. Several hon. Members have touched upon the matter. It is the problem faced by small firms when they outgrow their initial structure. These firms have progressed beyond the bare bones with which they began and need loan capital and equity capital to expand. I can give a practical illustration from my own constituency within the last few days. Two business men, young men in their early forties, both immensely able, decided five years ago to go into business on their own. They purchased a service firm. I will not identify the nature of the business. It would regrettably identify the firm in Huntingdonshire.

When the two men purchased the firm, it was under-capitalised and making a loss. They increased the capital against the security of their own personal assets. In five years, they had corrected an ailing balance sheet. Their turnover has multiplied many times. They have established a growing clientele and a very good business relationship.

The firm is now in profit. Whereas a small number of people were formerly employed, the firm now employs 15 and is looking to employ more. It is on a sharply rising trend of business and doing marvellously well. But, despite the various areas said to be open to achieve equity and working capital, the firm is finding difficulty in expanding its capital base and providing sufficient working capital with which to grow. That has happened despite the work of ICFC and COSIRA. May I say in passing that I hope that COSIRA will be permitted to continue its good work in years to come?

The problem faced by my constituents is not unique. The fact that it is not unique shows the importance of the problem. Many companies face similar problems. But those companies must grow if we are to have a successful and expanding economy and sufficient jobs. That is the dilemma that we face. Do we subsidise them? A subsidy, in the sense that it would be understood by the hon. Member for Norwood (Mr. Fraser), is not what we have in mind. It would be inconsistent with our philosophy.

Ideally, it is said, new equity comes from retained profits and working capital from the banks. In the real world, the sort of firm about which I am talking, making the transition, as all small firms must, to a larger scale of business, is not able to fund that sort of expansion out of retained profits. At a time, largely due to inheritance, when we probably face a recession in 1980, it is even less likely that the operation can be funded in that way.

A small firm, at an embryo stage of development, finds itself highly vulnerable as it seeks to move into a different scale of operations. It is said, in terms of working capital, that banks exist to fund established companies at that stage of development. I am bound to say that I am not as sanguine as some of the banks that they provide the right sort of capital at that stage of development. I agree with the hon. Member for Greenwich (Mr.Barnett).

I should like at this stage to enter a special plea with the Minister. I hope that the Government will not bury entirely the interim Wilson report entitled “Financing of Small Firms”, especially one part, to which I should like to refer. On 12 November, my right hon. Friend the Secretary of State for Industry confirmed to my hon. Friend the Member for Luton, East (Mr. Bright) that the Government were examining the possibility of a loan guarantee scheme for small businesses involving the assistance of the clearing banks. Later, on 4 December, my hon. Friend the Under-Secretary of State for Industry, in a written reply, advised my hon. Friend the Member for Surrey, North-West (Mr. Grylls) that the matter was still being examined. I formed the impression that his reply was rather chilly. I hope that the chilly reply was Civil Service prose and not Government policy.

I hope that the Government will examine the loan guarantee scheme further. I hope that they will be able to implement it. I do not propose, at this late stage of the debate, to rehearse in detail the pros and cons, but I believe that the Wilson committee’s comments merit careful consideration on this point.

The committee reached its conclusion after examining the experience of other countries. Any Government commitment would be a contingent liability only, given the great operation proposed, in concert with the clearing banks. In paragraph 29 on page 28, the committee said: We recommend that a publicly under-written loan guarantee scheme, with a limited subsidy element and some part of the risk retained by the banks, should be set up on an experimental basis”. That is a modest but worthwhile proposal and I hope that the Government will give it a fair wind.

My hon. Friend the Member for Surrey, North-West has already asked the Minister to issue a consultation paper to examine such a scheme further. May I add my weight to that request? I hope that, in this limited and modest way, the Government will play a role in assisting the equity and working capital finance of small firms.

Mr. D. N. Campbell-Savours (Workington) It is customary with me to make a brief speech, but on this occasion, particularly considering what happened in the steel debate last night, I have a right to time and I intend to exercise it.

This is an important debate. It is a tragedy that it turns on a narrow motion, which fails to divide areas of small business into service, trade, smaller industry or small business generally. One has to divide the subject before one can make an effective analysis of what has gone on and what has gone wrong.

The motion also fails to include reference to a general policy for the promotion of smaller industry, particularly as it affects the regions. I had hoped that this Government would provide some time over the last few months for a debate on smaller industry, but I am told that their legislative programme precludes their doing so.

We in Workington do not underestimate the important role that smaller industry has to play in future. As we now look forward to periods of increasing unemployment, we look to smaller industry in our fight to resolve those problems. We need a regionally oriented small industry promotion policy.

Over the last five years, there has been much fashionable talk about smaller industry but, despite some initiatives and developments under the former Government, not much action. I pay my respect and gratitude to the The Guardian for its positive introduction of a page dedicated to small business, edited by Clive Woodcock, because that has played a prominent part in the development of the debate on this matter.

As industries, particularly larger ones, close, many of us look to the smaller industries to take over and we must hope  –and expect – that a fair debate will develop. Yet, in the debate that has already taken place, by failing to tackle the root problems we have failed to help smaller industry. I divide those problems into two sections – the problems in smaller industries in the regions, and those of smaller industries in the central conurbations.

In the regions, the problems are transport to the markets, general communications and small local markets. Local markets have an important part to play in the development of smaller industries, most of which begin by supplying their immediate locality. Another problem in the regions is that of higher prices for the supplies and services that the industries themselves need. That is a severe impediment to many of us in the development areas. There are problems in securing premises, particularly in the development areas, where there is not enough property available to small businesses.

Small manufacturers in the central conurbations have two major problems – lack of premises and cash flow. I shall discuss cash flow problems in a wider context. The study published by the Department of Employment to which I have referred related to employment protection legislation. That study revealed a major problem. It said: The respondents were then invited to list all the main difficulties they faced. Employment legislation was mentioned by 6 per cent. of respondents, ranking equal thirteenth. Forty-four per cent. mentioned financial problems”. Those financial problems stem from the way the banking system is organised in this country. The Government should take a positive decision on the establishment of a bank the objective of which would be to support the smaller manufacturing sector of our economy.

I wrote a document some years ago in which I referred to a regional development bank. The former Member for Rossendale outlined those broad proposals in the House two or three years ago. I proposed the establishment of a regional development bank managed by the State. The interest rates charged would depend upon the region. The criteria that would govern the level of interest rates charged by that bank would 1805 be the level of unemployment, the relationship between vacancies and unemployment in an area, or the unemployment multiplier.

In other words, in a part of the country where unemployment was particularly high the interest rates charged would be lower than in other parts of the country. The rates would be subsidised. In that document I proposed an import substitution discount on interest rates whereby if the Government designate certain products as necessary in the interests of an import substitution policy those products would attract interest rate subsidies.

From the Socialist point of view, I advocated what I called a social control discount arrangement whereby companies that were willing to introduce certain forms of industrial management – forms that I believe will be introduced in the later 1980s – would attract a certain discount on their interest rates. The loans would not be on general overdraft only. Such loans would be in an important new form; they would be on discounted invoice values. In other words, they would provide an incentive to companies to shift their goods and then claim the special cheap money available from the bank. I believe that that would be a positive incentive and would certainly help smaller manufacturing industry.

I have considered the question of the guaranteeing of these loans. I suggest that the Government consider introducing, through the bank, a system of credit guarantees in the form of a post-dated cheque whereby the purchaser, at his option, would be able to sign a document which underwrote the position of the person borrowing from the bank. Thus, a small industrialist going to a bank for money would not need to put himself in hock as he must do under the present system. Many smaller industrialists now have to provide evidence of value of goods or worth at a bank before they are able to raise money. Such a system often defeats the objective of providing funds for the small business sector.

The system that I am proposing would dramatically improve the gearing of companies. Before I came into the House, I was an entrepreneur – one of very few on the Labour Benches. My experience is that the small industrialist becomes a banker. He lends money to his buyers and to the people that he supplies. The problem is that a small company which extends three months’ credit and whose turnover is £1 million a year could, in the cycle of distribution, be permanently lending to other people as much as £200,000 of the vital capital which should be used to expand that business. Some small firms get round that by discounting their invoices. But most small companies cannot afford that level of expenditure and the cost of that form of interest.

During the Committee stage of the Competition Bill I mentioned the trade between large and small manufacturing industries. Large manufacturers often demand the right to extended credit. That damages the interests of the small manufacturing industries. I ask the Minister for Consumer Affairs whether she would consider establishing a code of conduct. Companies could register that they are willing to comply with that code so that suppliers and others know with whom they are dealing.

I turn to the question of premises. I am aware of the efforts of the English Industrial Estates Corporation, the county industrial development units in the regions, the Departments of Trade and Industry, through advance factory allocations, and the new towns. We need a policy which will provide cheap nursery units. It is not good enough to talk about rentals costing £1 or £2 per sq. ft. for the man who wants to start an engineering workshop in the regions. We must find a way of providing cheaper space. A price of 25p or 50p a square foot would be realistic. Many small manufacturers require cheap space and low overheads in the early days of their industrial endeavours.

The regional local authorities should consider setting up municipal enterprise boards with the right to invest in small manufacturing industries and to hold equity. They could work in conjunction with a regional development bank to raise the necessary capital.

Various charges and costs fall on the backs of smaller companies, particularly in the regions, which are unfair because they fall to a lesser extent on industries in the main conurbations. The Government could act in that respect. For instance, if one of my constituents who runs a small industry wants to telephone a buyer or supplier, his call will cost him more because he is further away from the main centres. His telephone bills will be greater than those of a firm operating in one of the main centres.

The Government should examine the possibility of regional freight subsidies. If a business man in West Cumbria wants to send a 40-ft. articulated lorry to London, it costs £340 return. Somebody in the home counties can send the same lorry full of goods to London for between £50 and £75. Transport costs are a positive impediment to small industry and to larger industries which may otherwise move to the development areas. A special system should be developed throughout the country.

The Government should also examine energy costs. In the light of successive Governments’ preoccupation with the supply and demand of energy because of international prices, the Government should consider introducing variable energy charges. Items such as gas and electricity should be cheaper in the regions and more expensive in the main conurbations. That would have a true effect in that it would help us in the regions to attract much of the industry that at the moment sees no benefit in going there because the incentives do not exist.

We should also consider the whole question of trade exhibitions and how they operate nationally. Most of smaller industry recognises the need to expand and will naturally exhibit in places such as the exhibition centres in Birmingham, Earls Court, Harrogate, Brighton and elsewhere. There is room for the Government to step in here and help the smaller business man, particularly the smaller industrialist in the regions, by paying most or all of his trade exhibition charges. That would be a positive help to smaller manufacturers because trade fairs and exhibition charges are a large sum in their budget. Such companies treat trade exhibitions as a vital element in expansion, the provision of jobs and the creation of profitability.

Some of my suggestions may appear costly, but if the Government channelled some of the money that they make available under the Industry Act 1972 into far more incentive-based forms of subsidy to the benefit of smaller manufacturing industry, I would find that perfectly acceptable and I would vote for it. The problem is that over the years regional aid has not been incentive-based. In Japan and Southern Italy much of the capital is laid out on the basis of incentives.

There is an army of civil servants in this country collecting statistics on trade and industry. I often wonder what happens to that information. Members of Parliament can draw upon it in the Library and study it, but if that information were supplied to smaller industries in a comprehensible form they could make much more of it than we do in discovering which new products to make. There is a Government document giving the overseas trade statistics of the United Kingdom. If one flicks through its pages, one sees millions of pounds, vast quantities and statistical columns relating to all sorts of products all of which could be made in the United Kingdom. The problem is that all the information that is available in the Departments of Trade and Industry is not getting through the system.

The Government would do well to consider introducing a simplified form of documentation. It might cost several million pounds. However, we should think in terms of what it would create by way of new manufacturing processes. The information could be fed through the system to manufacturing industry to guide the people who design new products and plan markets in the vital decisions they take. That is done to a certain extent in Italy. People from the Ministries circulate throughout industry explaining what should be made, because clearly it is in the national interest that certain products should be produced at home.

I know that the Conservatives will violently disagree with me on my next point. There is a clear and positive impediment to the development of smaller manufacturing industry and small businesses generally. It is the existence of inheritance. If one subscribes to theories about individual initiative, freedom of enterprise and the right of a man to stand on his own two feet, one must take that to its logical conclusion. Very often, those on the Government Benches forget that much of the damage that is done to this possible growth area of the economy is done by the right of one generation to transfer to another generation large tranches of inherited wealth.