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Small and Medium-sized Businesses

My Lords, like other noble Lords, I am grateful to my noble friend Lord Harrison for securing this debate and introducing it so eloquently. By the way, if I may say so, it was rather cheeky of the noble Lords, Lord MacGregor and Lord Dykes, to say that we were not interested in small and medium-sized enterprises when we were in opposition. I remember when I sat exactly where the noble Baroness, Lady Miller of Hendon, sits when I covered the DTI portfolio, and I am glad to see the noble Lord, Lord Vinson, in his place because he will remember this. I kept banging on and from time to time I made pacts with the noble Lord, Lord Vinson, to ensure that these matters were duly debated in this House. Of course, the noble Lords, Lord MacGregor and Lord Dykes, were not here at the time. This is certainly an important matter and, as other noble Lords have pointed out, small and medium-sized enterprises are great generators of employment. The number of jobs created by start-ups is estimated to double in Wales over the next five years. At the moment, 7 per cent of the Welsh adult workforce—95,000 adults—work in small and medium-sized enterprises, so the importance of the matter should not be underestimated. I will be relying very much on a survey that has been conducted by Babson College and London Business School, which was published last week. It measured the level of entrepreneurial activity between countries and between regions within those countries, and what makes a country or region entrepreneurial. The survey used a measure entitled the total early-stage entrepreneurial activity rate—if noble Lords can get their minds around that rather complicated expression. In the United Kingdom, we are more or less in the middle of the range of countries covered in entrepreneurial activity. We are better, oddly enough, than Germany, France, Austria and the Netherlands. We are worse than Ireland, Australia, Chile, Brazil, the United States, China and, going right up the scale, Thailand and Venezuela. Wales has a lower entrepreneurial activity than other regions in the UK apart from the north-east and the north-west. In comparison with similar economies in the world—New Zealand, Iceland and Ireland—we in Wales are badly failing. On the other hand, we have some pluses. The survival rate of start-ups is higher in Wales than in London and the south-east. The Welsh are more optimistic about their future in small enterprises and less worried about the possibility of failure. East Wales and, notably mid-Wales, which is where I live, seem to be doing rather better than west and south Wales. Alas, to return to something that the noble Baroness, Lady Byford, and my noble friend Lord Harrison said, the number of women on start-ups is only half that of men, which is something that we need to address. Other minuses are that a large proportion of the start-ups are from immigrants or in-migrants either from England or, oddly enough, from Northern Ireland. We have fewer start-ups from ethnic migrants from other countries either in the EU or outside it, so there is also a relative paucity of what are known as business angels—private individuals who will support new businesses as and when they come for funds. Much of this is a matter for the Welsh Assembly Government. I do not wish to tread on toes, but it is clear that in Wales—a paradigm for the rest of the United Kingdom—we have to encourage the pluses and try to reduce the minuses for start-ups. As noble Lords have said, start-ups will provide a major source of employment in years to come. First of all, there is the importance of education. I shall go back in history for those of us who remember. The tremendous upsurge in the West German economy after the war was almost entirely due to the mittelstand, middle enterprises. This was, not least, because the Germans of the day were educated into an entrepreneurial activity, because their families had been in the same businesses for generations. Education—vocational training—is vital to make sure that people understand about starting up a new business and how to get involved. An odd feature of this report—it is true of Wales and, I imagine, of the rest of the United Kingdom—is that those with a master’s degree are much more likely to take the risk of going into their own business than those without a master’s degree. The difference is statistically established. Therefore, we must try to get more people to take master’s degrees if we want this sector to flourish. Then there is the question of relative youth. As is probably true of the rest of the United Kingdom, in Wales those in the 18-to-24 age group are much less likely to start their own businesses than the older age group. They are not risk averse. A lot of them say that they would like to start their own businesses, but are worried about starting a career that may end in failure at the age of 30 or 35, when it is difficult to get a job with an established company. Something needs to be done about that and I will come to what I think might be done. As many noble Lords said, we have an upsurge in regulatory burdens. The problem in Wales is that these regulations are frequently in two languages, which makes filling out these forms even more difficult for those who speak neither Welsh very well nor, sometimes, English very well. That problem has to be addressed. It is a simple and practical problem, but something we have to address. When I was sitting in the place of the noble Baroness, Lady Miller of Hendon, I used to complain about the regulatory burden, the lack of finance, the political leadership and the services available to small businesses. I was usually stonewalled by the then government Front Bench. The arguments are, I am afraid, still the same. As far as finance is concerned, I appreciate what the noble Lord, Lord MacGregor, said about venture capital trusts. It would be a good idea to encourage the major clearing banks of this country—which, after all, are making tons of money—to allocate a certain percentage of their profits to the sort of venture capital trusts that he described. It would not be difficult for the banks. They could even be given tax relief. They would not have a problem with cash flow. They would be able to pretend and even put themselves about as being virtuous, which sometimes banks need to do. They would be seen as pillars of job creation in the community. I would have thought that that was a worthwhile idea for the Minister to study. There is the question of the services available. In Wales we suffer, for instance, from broadband not being available throughout the country. That is an important service for small businesses. In mid-Wales, half the county of Powys has no broadband at all. Somebody—I say to the Minister—ought to invite BT to pay a little more attention to those areas where there are positive possibilities for starting up enterprises, and encourage it to extend its broadband range there. Finally, I believe that it is possible to improve on what we are doing at the moment. I do not think that what we are doing is bad—we are in the middle of the range—but it is possible to do better. If we were to do better, we would not just double the number of people in work in small and medium-sized enterprises, but treble it. That might go some way to mitigating the problem with pensions that exercised your Lordships earlier this afternoon.