Small Firms

My Lords, it was the comedienne, Victoria Wood, who uttered the rather dubious prayer, “Please God, let me prove that winning 1249 the lottery won’t spoil me”. For many, starting one’s own business is a lottery with no guarantee of success.

I am privileged to be a vice-president of the Small Business Bureau and president of the African Caribbean Westminster Initiative. Both of these national organisations have given me some insight into the opportunities and problems facing the small business community. I also speak from personal experience as a director of a small company.

Having said that, I acknowledge that my business experience is far short of that of the noble Lord, Lord Haskins. I take this opportunity to welcome the noble Lord to this House. I believe that we all agree that he will be a great asset.

There is no doubt that the future of small companies is vital to our economy. They form the majority of businesses in this country. There are 3.7 million small firms contributing 40 per cent. of turnover and employing 50 per cent. of the private sector workforce. Nearly 95 per cent. of them employ fewer than 10 people.

When I was a full-time barrister the rules of life seemed relatively simple. My experience in the criminal courts had taught me, for example, that one should never buy a portable television set in the street from a man who is out of breath! Furthermore, video recorders described as “genuine Victorian antiques” are usually from a less than honest source.

But starting a small business takes one into another world where one feels a little like David surrounded by an army of Goliaths, including the Working Time Directive Regulations and the Minimum Wage Rules. Clearly, some regulations are required, especially to protect health and safety. But it is the cost and the complexity of the system which is wrong. Since May 1977, when the Government came into power, they have imposed over 2,000 new regulations. I believe that it now 2, 400, but who is counting?

The Institute of Chartered Accountants estimates the extra cost of regulation on the average small business to be £5,000 per year. That sum is enough to close down some firms or to deter others from even starting. The Confederation of British Industry, the Institute of Directors, the Federation of Small Businesses and the Forum of Private Business are all critical of the present situation.

The noble Lord, Lord Haskins, acknowledges—and one is grateful for it—that the compliance with regulation impacts far more on small firms. Large employers can delegate or hire more management to cope with the additional administration. The small businessman usually has fewer options. The sole trader often has to divert time away from his business to ensure compliance with a whole raft of rules. The sheer number of new regulations means that smaller companies are sometime unaware of the latest obligations that they have to comply with. So time is spent trying to find out and then there is a rush to avoid penalties for missing the deadlines.

To most small firms finances are critical. For many, the most beautiful words in the English language, apart from the Bible and Shakespeare, are “Please find cheque enclosed”. Noble Lords may agree that the phrase has a 1250 certain ring to it. So the last thing that a small businessman wants is to become over-regulated to an extent which actually inhibits wealth creation.

The problem has particular resonance for the ethnic business community. I helped to form the African Caribbean Westminster Initiative because I was aware of how difficult it is for black and Asian business people to attract funding from mainstream financial institutions. To tie them down also with excessive regulation is to keep them at the starting block with less chance of competing.

The Federation of Small Businesses, representing 130,000 firms employing 1 million people, has called for a single inspectorate to deal with regulations such as those affecting health, safety, fire and the environment. These agencies have responded by saying that no one agency could ever be expected to handle all these issues. Quite frankly, I have sympathy with that response. But the problem is that that is exactly what the small business owner is expected to do.

The noble Lord, Lord Haskins, does not appear to be complacent about the situation. He may agree with me that the Working Time Directive, certainly in its initial form, was clumsy and unclear. The Government introduced it in a rush with no parliamentary debate. It may be that they were worried about being taken to the European Court. The leaflet explaining the directive contains 72 pages. The problem is that it had a number of errors. I believe that it is on its third reprint at the Department of Trade and Industry to get it right. If the department is unable to get it right how can the small businessman do so?

As regards the National Minimum Wage Rules, I notice that they were introduced on All Fools Day. I make no other comment about that. The DTI did provide a 112-page guide, but firms were given just three weeks to comply, to get it right by day one or face criminal conviction and a fine of up to £5,000 for not complying. Bearing in mind that the rules cover temporary staff, seasonal workers, piece workers and includes bonuses, but not free meal vouchers, this task is not easy for anyone let alone the small employer. The Government seem to be operating on the principle: “If you can’t convince them, confuse them. ”

I accept that simply exempting small firms from regulation would not be right, especially in areas such as food safety. But, as suggested by the Confederation of British Industry, regulators should put more emphasis on helping firms comply, rather than punitive enforcement.

I understand that there are more than 30,000 regulation enforcers at the moment. But one of the problems is that local authorities put different amounts of resources into enforcement. So a small business in one area could be subject to visits from one inspector after another while those in another area are less scrutinised. Even where advice is given, inspectors from different agencies have been known to give conflicting advice to the same business.

As regards employment, we know that small companies in America are not covered by many of the business regulations. They seem to do very well. But their employees can enforce their rights through the legal system and frequently do.

There is a strong argument for a freeze or amnesty on many more regulations at least for the rest of the year. We should remember that small firms are already trying to cope with pressures from the introduction of the euro and the need to prepare against the millennium bug. It seems to take more brains and effort now to comply with the myriad of regulations than it does to actually make an income.

There should be at least an annual statement to Parliament on the cost of regulation and the Government’s plans to reduce that cost in the following year. I would also welcome a minimum period of consultation; for example three months, on each new regulation, with organisations like trade associations. There could also be a similar period of notice, within which to give firms time to prepare.

I have a business friend with an exceptionally creative mind. But just to keep his small company going amidst the sea of regulations, he feels unable to employ more people to make the business itself grow. As he told me, “John, I started out with nothing and I still have most of it”.

It is time for a better balance and greater understanding of the difficulties faced by small firms. Over- regulation is the enemy of job creation. We must not forget the old saying that you cannot fish and mend your nets at the same time.