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Small Business (regulatory Burden)

November 6, 2001

Small Business (regulatory Burden)

I agree almost four square with the philosophical outlook of my hon. Friend the Member for Billericay (Mr. Baron). He summed up the position nicely by saying that we should be moving towards the United States model rather than a European-type model in respect of small businesses. As a former small business man, I do not need to make a declaration because, within a few months of the general election in June, I was bought out of the business that I set up eight years ago. The Minister may think that it is curious that a phalanx of small business people who want to extol the virtues of such a wonderful life have now decided to go to the public sector, courtesy in part of the electorate. None the less, that means that we have a strong contribution to make to such a debate. Furthermore, ours will be an on-going contribution in the months and years ahead.

I want to concentrate on the more practical aspects of this important issue. No one wants to talk us into a recession, but clearly matters will be a little more difficult in the next few years than they have been in the past half a decade or so. I agree with my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) who said that, as the economy begins to struggle and turn down, we need to speak up for – without overly interfering with – small business. He had statistics, such as the fact that there are 4 million or so sole traders and microbusinesses, at his fingertips as well as details of small businesses such as the one that I ended up running. I set it up with a partner, and by the time that I left it, about eight years into running it, we had a dozen staff and a turnover of a little more than £2 million. I identify with some genuine anxieties, especially in the final two or three years, relating to payroll issues and that of the unpaid tax collector, to which my hon. Friend the Member for Hertford and Stortford referred. Many small business people feel that they are long-term Government employees in that respect.

I calculated that for every pound that I brought into the economy, 64p went in tax – if all taxes were counted, including value added tax, corporation tax, my slug of income tax and the employer’s national insurance stamp. A significant amount is involved. For every pound that a small business man earns, he can keep only 36p, with more or less two thirds going elsewhere. That tax regime was in place before 1997, as I am sure that the hon. Member for Bassetlaw (John Mann) would be the first to remind me, and I welcome some of the measures introduced in the past four or five years. We now have a more sensible capital gains tax regime, although it has recently become rather more complex. I hope that many Opposition Members would agree with some of the actions of the Chancellor of the Exchequer and, by extension, of the Minister’s Department.

One of the main concerns at a practical level that many people in small business now share is that we should strike a balance between, on one hand, achieving a work-life balance and considering small business issues in terms of employee rights – to which the hon. Member for Bassetlaw alluded – and on the other, introducing what they would regard as red tape. We must achieve a balance as far as possible, and in my view there has to be a demand for less regulation.

There is a perception that, in my constituency, Cities of London and Westminster – the constituency in which we are today – all the industries are large multinationals. My hon. Friend the Member for Billericay discussed some of the largest institutions in the City of London and some of their anxieties. Equally, however, there are many small, often family-owned businesses based in the constituency, and they have many common small business concerns. Obviously, they have some London-based anxieties relating to congestion and the sheer cost of housing, which means that attracting employees can be an issue, and some fundamental infrastructure issues are involved, especially in relation to transport. Nevertheless, some genuine worries are close to the hearts of people who run businesses here. Payroll issues, in particular, have become ever more prevalent in recent years, as a result of the Employment Relations Act 1999 and the fact that, increasingly, smaller businesses do not have the infrastructure for a large marketing department or, perhaps, even a human resources or payroll department, yet have to deal with complex specialist paperwork.

My business was a classic in that mode. We were not sufficiently well off to employ people full-time, and we had to take consulting advice on payroll aspects. Ultimately, however, much of the burden fell on me and my fellow director. I shall be honest about this: there were concerns. We had a small and relatively young business and, given that at one time two of our four female employees were on maternity leave, it had to make us think twice about whether we could employ more youngish women who might well be considering having a family. Obviously, the increasing amount of paternity leave is an on-going concern, especially for smaller businesses, as employees can be out of the picture for some six months. Long-term plans cannot be made about employing a replacement, lest the employee decides to return. We wanted to employ graduates, but it was very much a factor in our mind that, as the payroll aspects of graduate tax provision were being put back in the hands of small business people, doing so really would have totted up costs.

I do not suggest that there should be a moratorium or free rein in this respect for small businesses. I understand that, as the Minister would rightly say, it would give companies at the cut-off point of, say, 20 or 25 employees a strong disincentive to grow if suddenly they faced new regulation from which they had previously been exempt. The point was well made by the hon. Member for Bassetlaw. He placed the blame for many of the woes of small businesses on the banking system, and more concerns would arise with regard to that if the economy were to enter a recession. Many banks would react to that situation by looking after their own interests and by watching what other banks were doing. If they responded in that manner, they would be reacting in a rational economic way, rather than misbehaving, but important concerns might arise with regard to cash flow. Assistance, such as tax exemptions, or allowing for certain taxes and rates to be paid on a longer-term basis, would be well received, especially in respect of smaller, relatively new, start-up businesses.

The debate has been useful, and I congratulate my hon. Friend the Member for Hertford and Stortford on raising the issue under discussion higher up the political agenda. However, time is running out, and those in the Chamber will now wish to hear from the Minister.