Small Business Forum at Labour Conference

LABOUR CONFERENCE FRINGE EVENT

HOW LABOUR CAN PUT SMALL BUSINESS FIRST

TUESDAY 2ND OCTOBER 1800 - 1900

MANCHESTER CENTRAL

EXCHANGE ROOM 10  - FREE

All are welcome to attend our fringe event at the Labour conference. We have the best small business thinkers and speakers at the whole conference who will be discussing how Labour can put small business first covering issues such as finance, innovation, tax and development.  

The meeting will be chaired by Philip Ross who will ask each panelist to speak for 5 minutes followed by discussions and questions from the floor.

We have the Shadow Minister for Small Business - Toby Perkins - who before entering Parliament ran his own small firm.

John Walker - Chairman of the Federation of Small Businesses - who will explain the issue facing their members.

Dr Jo Twist CEO of the UKIE the trade association in part for the UK's Video Games industry, she will talk about the creative opportunities ahead and the need for skills and innovative funding such as crowdfinancing

Richard Little from the PPMA will talk about innovation and invention and patents and how Britain needs to harness, protect and celebrate its creativity.

Emily Thomas from Aequitas Consulting and former Treasury and DTI Special Advisor.

Is the City changing?

There is a lot of thinking going on in the City of London. If you were to walk around the Square Mile and attend meetings at the various market groups, thinktanks and at Gresham College, you would be pleasantly surprised at what is being discussed. As well as ritualised complaints about victimisation on bonuses and regulation a new theme is starting to emerge, for a long time fledgling but one that is now starting to fly above the other topics – it is the issue of ethics and values. Last year Charles Moore questioned capitalism and now some of the bankers themselves are viewing it in a new light. Whatever next?

In March, Stephen Green, former chair of HSBC and now minister for trade and investment gave a Gresham Colleglecture entitled ‘Values and Value’ and suggested that capitalism was still ‘on trial’. In its defence he suggested that profitability and social responsibility weren’t mutually exclusive and neither were shareholder value and ethical values in conflict. He commented on the truism that there is a new generation emerging from university that believes that it is right to question the corporate ethics of the organisation they may work for.

A week earlier Merrill Lynch hosted the spring conference for the City’s Long Finance thinktank which discussed ‘into the folly of value – reforming sustainable finance’. The keynote speaker, economist and former Bank of England committee member Professor Charles Goodhart,  spoke of the pro-cyclical nature of regulation. He noted that after the South Sea Bubble crisis in 1711 it was decided that such a crash should never be allowed to happen again so they regulated and outlawed limited liability companies (which remained broadly banned until 1844).

Goodhart noted that consensus about the current crisis was centring on it being a failure of regulation and supervision and the reaction was for more regulation. But he argued that regulation is not so important because at present the market has no appetite for risk or lending. He noted a tendency both to regulate and deregulate at the wrong times: after the 1929 crash, the response in the US was the introduction of the Glass-Steagall Act which separated out retail banking from investment banking. By 1999 it was decided that the act had been inhibiting growth so it was dismantled.

For the future, Goodhart suggested a gradual implementation of regulation as the market grows combined with changes in governance to transfer it from managers and shareholders to stakeholders. He suggested that we should rely on governance for the future as regulation is, as demonstrated, pro-cyclical particularly for the larger banks. To me it follows that the larger a bank becomes the more socially responsible and accountable it needs to become to the community at large because, as the last crisis showed, it was the community that ultimately stood surety for them.

Since then we have had the Libor crisis and, if ever there was a crisis about ethics and values, then this must be it. The irony is that Barclays was founded as a Quaker bank but Bob Diamond when asked by Treasury select committee member John Mann did not know what the founding ethical principles of the bank were (honesty, integrity and plain dealing).  At the recent Tomorrow’s Finance conference David Pitt-Watson in part called for a return to the principles of Alfred Marshall – one of the founders of economics – which was that success came through ‘honesty and uprightness’. Ethics and values are not a new or quaint idea, or a product of wishful thinking, but were what our financial system was original built from. The City is starting to recall that.

But it is hard to say how long this reflective mood will last. The jury is still out, as the debate about what it is that the finance does, how it does it and why it does it continues. The lead argument is that shareholder value and social ethics and values, and profit and corporate social responsibility, can be married together in a combination of both regulations and ethics. Perhaps good regulation and accountable corporate governance can be the glue that marries these partners together and the offspring will be a more prosperous and fairer society, and a financial system that works for the benefit of us all.

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Philip Ross

Speaking for small business

Speaking for small business - From Progressonline
by Parry Mitchell

Baroness Jan Royall, the leader of the opposition in the House of Lords, emailed me recently asking whether I could come and join her for a five minute chat.  When the leader summons you, you are prepared for the worst, but I was very pleasantly surprised.  Jan asked me whether I’d like to take on a front bench position shadowing  the government’s BIS department.

I asked whether I could consider it over the weekend , but in truth my mind was made up in two nanoseconds.

For nearly 40 years I had been in the information technology industry, most of it as a serial entrepreneur.  I had created, developed and eventually sold three international IT service companies. I know what it’s like to build a company from a couple of people sitting round a table to eventually becoming a global player.  My expertise comes from the coal face (well not quite the coal face!).

I was ennobled in 2000.  If you are an ex-MP or have been involved in any form of politics beforehand fitting into the House of Lords is seamless, but if you come from a non-political background it’s tough.  I’ve been there over 12 years and now I really know the place well, though I must admit I struggle remembering the names of Cameron’s recent intake.

So why did I take this job as shadow business minister?  Not for the salary – there isn’t any.  And not for the power – in opposition you are impotent.  And certainly not for ambition – I am way too old for that.  I took it because I really do have something to say on a subject I know very well.

My brief is SMEs and my boss is Chuck Umanna – he is less than half my age, but he is terrific and knows his subject.  I am looking forward to working with him and the shadow BIS team.

You have only to look at the statistics to see that unemployment in the UK comes from job reductions in the large company sector and from the public sector, whereas small and medium companies are more than holding their own.  You only have to look at exports to also see that SMEs are doing well and its the large company sector that is struggling.  In a depressed economy it is the SMEs who are nimble and stepping up to the challenge.  But we should be doing more to encourage them.

I refuse to accept that Labour should be anything other than the party of business – we mustn’t let the Tories claim business as their sole preserve.  It is SMEs that will lead the recovery and it is SMEs which will provide new employment – my brief will be to contribute to the front bench BIS team’s thinking and policy making as well as to hold the government to account.

Just a word about the banks.  I speak to many SMEs and despite quantitative easing and despite all the programmes this coalition government have announced, precious little finance is getting through from the banks to the SMEs.  There are many companies out there who have battled through this recession, cut costs, restructured their business models and are now well on the way to recovery. They have done everything right in an economic crisis they did not create, but the banks still treat them like lepers.

The banks failed. The nation bailed them out. It’s their job to perform and we should be holding their feet to the fire.

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Parry Mitchell is a entrepreneur, member of the House of Lords and the newest addition to the shadow BIS team

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Labour is regaining the trust of British business.

Labour is regaining the trust of British business.

Under Ed Miliband’s leadership Labour have already made huge strides on the journey from the foothills of our dismal 2010 election failure to the lofty peak of returning to power.

On Tuesday another significant step felt like it was taken as Ed Miliband, Ed Balls and Chuka Umunna addressed around 500 businesspeople at Labour’s Annual Business Reception at the Chartered Accountants’ Hall in the City.

One of the greatest signs of the challenge that faced the leadership team was the extent to which we lost the business vote in 2010. Virtually no significant business figure came out in support of a Labour government at the last election and, even more significantly, a chasm opened between the voting intentions of public and private sector workers with those not working under the umbrella of the state much less likely to vote for us.

While Tuesday was by no means the resealing of the deal between Labour and the country’s wealth creators, it was perhaps the ‘end of the beginning’ of that process.

Meeting businesspeople from across the country, from Norwich to Manchester and from Sussex to Yorkshire I was struck again by the extent to which they are keen to give Labour a hearing now in a way that they wouldn’t have nine months ago.

Chuka Umunna laid out the challenges that faced Labour. The party was listening and learning, but more businesses every day were telling him they didn’t want government to get out of the way, they wanted it to get behind them and support them in the way their international competitors could expect. He recognised that recovery would only come from a vibrant business sector working in harmony with government.

Subsequently Ed Balls was on top form highlighting the areas of agreement that exist between Labour and the government on the need for a credible deficit reduction strategy, but stipulating that the disagreement was about how it was achieved. They have created a flatlining economy with cuts that have been too far and too fast, choking off the growth needed. The public and private sector should be in partnership because both will play a part in getting Britain back on its feet. We will reduce the deficit but through a stable programme of business growth not an overreliance on public spending cuts.

Ed Miliband spoke of his recent encounter with Heather Small of M People who had said she was supporting Labour because she had seen the fear in the eyes of her 20-year-old niece, and recognised how many other young people saw their hopes abandoned by the Tory government. He made the case for why tackling the obscene practices that have existed in the banking sector was a resolutely pro business thing to do.

He stressed how his government would look to support business and why recent policy studies around the British Investment Bank and the review of long-termism demonstrated how Labour wanted to be on the side of the vast majority of businesspeople who contributed towards the success of the nation, while delivering on the bottom line.

He also introduced the special section of the Future Candidates programme which was designed to encourage more businesspeople to represent the Labour party in parliament and on councils across the country.

The feedback from attendees was overwhelmingly positive. Despite the fact that many of them would not consider themselves natural Labour supporters, hundreds waited behind to meet the two Eds and Chuka and to push their particular ideas or concerns about how the British business environment was shaping up.

The final word went to a Shropshire-based accountant who told me: ‘I haven’t voted Labour in quite a while, but seeing those three up there, I have to say they looked like they were serious, I really think they’re going to win.’

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Toby Perkins MP is a member of the shadow business team and MP for Chesterfield

Originally published by Progress

What is the City for?

What is the City for? It is not just a question that I am posing but is a question that the City of London is asking itself at the meetings of various financial think tanks and conferences. It is just as well because the rest of the country - families, small businesses and individuals are all asking it.

Long Finance rhetorically asks ‘when will we know that our financial system is working?’. Of course we can take today’s position as the false positive, meanwhile the financial industry itself offers technical reasons and procedural solutions to each of its failings and suggest that all these faults can be considered separately and discretely. They consider there to be just a few rotten apples, whereas others suggest that it is now the whole barrel that is rotten.

Does it matter now how many apples are rotten? Whether it is some or all, or whether the system can be technically fixed by a few modifications and a bit of extra regulation? Because at the heart of it is an issue of confidence in the entire financial system and of those who run it. For example, how can we persuade people to put money aside for their retirement in such a financial system? Once people pooled their funds and resources to create mutual organisations, they would save together and lend to each other through their own trusted institutions, whether as building societies or mutual insurance companies. The loss of the Mutuals and their disconnection from their grassroots is significant, while their financial resources and reserves may have been squandered, what it seems was also lost was the principles and ethics that underlined them. The fact is that they existed to collectively serve their members (the savers, borrowers and policy holders) and not to exploit them or their communities. Other institutions though not mutual were also founded on similar ethics, for instance Barclays was founded as a Quaker bank. It was very telling that Bob Diamond didn’t know what the Quaker principles were when asked at the Select Committee.

Now the image - and perhaps the reality - is that the banking system exists to enrich those that run it (the bankers, fund managers and the like), not those that it serves and the only control we have it is not through ethics, accountability or principles but just regulation. Therein is the root of our financial crisis. (Further regulation is not the answer as it favours the large not the small).

Instead of endowing members with the profits from its schemes, the image is that the only endowments done are into bonuses. While it is true that we need to reward people for their effort, why is it that banking and the senior public sector are the only areas where profitability and performance don’t seem to matter?

The banking crisis suggests incompetence; the Libor crisis corruption and rate fixing scam on small business (interest rate swaps) suggests exploitation.

On this evidence the banking system doesn’t seem to be there for us or small business. Why should hard working families entrust their hard earned monies to such institutions? We can all see the advantages of prudent saving for old age and the need for insurance and can work through our dislike of the system to make such savings, but not everyone will. This dislike of the system and belief that they are being ripped off is a strong motivator. There is a need to persuade people that institutions can be trusted to look after their money; that they won’t just use it to enrich themselves, but will use it for instance to grow sustainable pensions for them and in that process they won’t be exploiting the struggling small businesses in our communities. Some say it is not in the banks interests to exploit small firms and the market understands the need to act in a sustainable way. In the book ‘The Price of Fish’ they compare the financial system to fishing and point out that it wasn’t in the fisherman’s interest to overfish and ruin the seas, but they did it time and time again.

How close are we to ruin? The fisherman never knew, do we? Do we need a new ethical and principle based revolution? To me that means more mutualisation perhaps at a lower level; failing that at the very least we should go back and implement those original Quaker and Barclay principles that seem to have been forgotten of ‘honesty, integrity and plain dealing’.

Philip Ross

Also published by Long Finance

Small business and VAT

24^th January 2011 – Progress

Philip Ross takes a look at what the government's 'all in it together' claim means for small business in the light of the VAT rise, arguing that small businesses trading with the public will be inordinately hit.

Of the many things we have been told by the coalition (Tory-led) government the statements I find hardest to believe are that ‘we are all in this together’ and that the ‘least damaging way to handle the deficit’ is to raise VAT. Firstly when they say ‘all’ I think they mean mainly us, not them, and secondly when they say that raising VAT will be the least damaging way – least damaging for who? It certainly won’t benefit families – that has been shown already – but it will also hurt and damage small businesses too, affect their long term competitiveness and in doing so damage the economic revival.

The Chartered Institute of Directors estimate that raising VAT to 20 per cent will result in the loss of a further 250,000 private sector jobs. Also, the Charity Tax Group has estimated that this increase will cost the sector an additional £140 million. The impact of this may harm the capacity and resources needed to address the government’s big society agenda. It does sound like the ‘wrong tax, at the wrong time’.

Introduced in the 1970s, VAT replaced various sales taxes that had existed until then. It started with a lower band of eight per cent and a higher band of 12.5 per cent, Geoffrey Howe’s first budget abolished the upper rate and raised the rate to 15 per cent to pay for income tax reductions and attempts at budget deficit reductions. They then extended it in 1984 to include hot takeaway food and building improvements, then in 1991 raised it to 17.5 per cent to pay for John Major’s cuts in the poll tax. Then in 1994 it was extended to heating fuel which was charged at eight per cent. Labour’s record on VAT is that it reduced the heating tax from eight per cent to five per cent and, last year, introduced a temporary reduction of the rate down to 15 per cent. Now it is up to an all-time high of 20 per cent. It is the tax of choice for the Tories, taxing people not wealth or income. Just like their other cuts and rises we have the same Tories doing the same, as they have always done; all that has changed is the camouflage for its reason.

VAT is a ‘consumption tax’ because it is borne ultimately by the final consumer. It is not a charge on businesses. Businesses can reclaim any VAT that they are charged. So for business-to-business firms it is not such an issue. But for lots of small business that set up to trade with the public whether providing services or goods, then their prices have just gone up. How can small businesses remain competitive in such an environment?

One way is to look the income threshold you must pass after which you must register as a VAT company – before that you can trade without it. The registration limit is £70,000 having gradually risen from £49,000 in 1997. The Federation of Small Businesses is lobbying government to raise this threshold again to take more firms out of VAT, to give them a chance to grow and prosper and spend less time doing stressful paper work. In recognition too that unlike larger businesses they will find it harder to absorb the VAT rise in their prices.

The coalition has laudably set up the Office of Tax Simplification, which, in principle, is a good idea. But that is not just their agenda it is a Labour agenda too. Taking just the example of VAT Labour simplified the Cash Accounting Scheme to let small firms defer paying their VAT until they has received payment from their customers) and more than doubled the threshold for CAS from £660,000 to £1.35 million helping an extra 56,500 business at the time. Labour also introduced the Flat Rate Scheme, which allows businesses to apply a flat rate percentage to their annual turnover – particularly helpful for some smaller retailers.

The Tory-led government has introduced a plethora of small business ‘initiatives’ and we should take each on their merits and I hope to write on these in turn, but, at the end of the day, price of goods and services is what helps make firms competitive, especially small firms. On this the government has got it wrong.

Labour and Small Business - Allies in waiting

20^TH September 2010 – Progress Magazine.

How did Labour miss the nearly five million small businesses in the UK? The party must really recognise the existence of these millions of employees and how they live and work in 2010. Small business strengthens communities and individuals.

Recently I read the interview Ed Milliband gave to the Guardian in which he said he wanted Labour to be the party of small business and the self-employed. An admirable aim, one which we put forward some years ago when we started the Labour Small Business Forum, which is a network of Labour party members and supporters who worked or had worked for themselves. We saw that there is a key Labour principle involved from the old Clause IV, which was ‘to secure for [people] by hand or by brain the full fruits of their industry’. Being your own boss in a fair society is a good way of trying to achieve this. It is about empowering people, it is about aspiration and it is about building prosperity.

When out canvassing in 1992, Tony Blair was told by a man cleaning his Sierra that he had always voted Labour in the past, but now he had started his own business he was going to vote Conservative. Blair said afterwards that that was the point at which he realised the election was lost. If Labour wasn’t reaching out to such people then they were doomed to fail. That was nearly 20 years ago. Today more and more people work for themselves as self-employed or freelance or run or have run small business. Has Labour really learned that lesson?

The traditional view was that the Conservatives were the party of capital and Labour the party of the workers. In the early 1990s at one of the first Labour party meetings I ever attended the selection process was under way to choose a councillor for a safe Labour seat. One of the candidates stood up and spoke and explained that while he was a postman, he also ran the local fish and chip shop. He said, ‘people say to me: How can you be in the Labour party and also run your own business?’ To a lot of tutting, he said, ‘well I say that my children have got to eat’. It didn’t go down very well and he got zero votes.

I hope things have changed since in the Labour party, but one of the inherent problems with new Labour was that the public perception was that it was pro-business, and as far as many grassroots members were concerned, too pro-business. Though that perception wasn’t true among the small business committee even in the Labour party, despite its best efforts the perception was that it was pro big-business not small business.

Change

Hopefully Ed and the other candidates along with many MPs have realised that small business is a key constituent in our community. But this constituency is changing. It includes not just the traditional array of tradesman, small firms making and selling items in our high street and in the industrial estates, but also an army of professional freelance workers working in the knowledge-based economy in areas such as IT, engineering and the creative industries including the media.

According to the Federation of Small Business there are 4.8 million small businesses in the UK (up from four million in 2003), of these three million businesses are sole proprietors and 1.3 million are companies and 462,000 are partnerships. Overall 97 per cent of firms employ fewer than 20 people 95 per cent employ fewer than five people. Over 500,000 people start up their own business every year and small firms contribute more than 50.1 per cent of the UK turnover. How did we miss this?

Maybe Ed thinks that the small business people and self-employed are a lost constituency and seeks to win them back, and hopefully the other candidates do too. But to do so will require them not just talking and saying nice things about small business but to embrace it and understand it and make a cultural and mind shift in considering it.

Firstly, helping small business isn’t just about providing extra help so that they can pay their taxes on time. It is about recognising that not every small business aspires to grow and develop. 

The lady running my corner shop doesn’t aspire to become the next Tesco’s. They are happy with just being a small business and earning a living for themselves and their family. Government support shouldn’t be there just to help them grow bigger but there to help them survive and sustain themselves. Ask any small businessman what changes they would like the government to make and they would say bring in legislation to force firms (usually larger firms) to pay their debts on time. The worst offenders, sadly, are often councils, government departments and the police. (As the Forum for Private Business recently discovered).

Secondly, they need to understand that small businesses often carry huge burdens. For instance maternity benefits. It was suggested in the past that government set up a fund to equalise the cost of between small and large firms. This idea – which came from Labour members who ran their own businesses – is exactly the outside of the box thinking that is needed. Indeed Labour has never quite understood that small business was within its own ranks, I think it always thought of it as something external to itself.

Thirdly, they need to understand the difference between freelance workers and temporary workers. The knowledge-based economy in IT and the creative industries are driven by armies of freelance workers. These workers are often engaged on short-term contracts for work on projects and to bring in expertise. If this is the employment and work pattern for the 21st century Labour needs to understand the needs and aspirations of these workers. They need to understand that many freelancers in the industries described above work this way not because they can’t get a permanent job but because they choose to. Freelancers don’t need employment rights; temporary and agency workers do. Freelance workers are often competing directly against large corporations in the same market, yet Labour’s IR35 policy treated them as employees for tax purposes and denied them the capital to allow them to invest in training and development or even any other business development. It didn’t allow them to draw a dividend on their profits they had made, the work they had done. But allowed it shareholders in bigger firms to draw dividends off the work that other people had done. That can’t be right.

I could requote the old clause IV – ‘to secure for [people] by hand or by brain the full fruits of their labour’. Indeed if I really wanted to I could quote Marx and mention ‘surplus labour’ and explain that exploitation occurs when those appropriating surplus labour – whether in the form of surplus value, surplus product or direct surplus labour – are different to those performing surplus labour. But that wouldn’t be a very New Labour thing to say.

Modernise

But a New Labour word to use, is ‘modernise’ – Labour needs to modernise its view and understanding of the labour market itself and that people will not only have several jobs in their lifetime, will have possibly different careers and will often pass through periods of working freelance and running their own business. More people than ever before are now working as freelancers or running small businesses and they are key to our future prosperity.

If Labour wants to succeed in the future then it needs to think about how regulations benefit, harm or bypass freelancers, temporary workers and small firms. Acknowledging that IR35 was a mistake would be a good start. It needs to think about small business and the self-employed just not as being vehicles through which taxes can be collected, but as drivers of our future prosperity and key components in building a sustainable and empowered community. To do so Ed, David, Diane, Ed and Andy need to understand how all these modes of work operate and there are many of us in the party who will help them, because today’s Mondeo man and Clio woman have in the past and will in the future vote accordingly.