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Mark Prisk, Conservative MP for Hertford and Stortford, initiated the debate, recently held at Westminster Hall, which included Nigel Griffiths, Parliamentary Under-Secretary of State for Trade and Industry.
Opening the debate, Mr Prisk said: "There are now four million self-employed people in Britain. Sadly, the Government's determination to push through the IR35 proposal has badly undermined their expectations about working in this country. In the few days since the announcement of the debate, I have received dozens of e-mails, letters and representations about the concerns of that group. One of my constituents, Mr. Paul Granger of Hovecraft Services, based in Bishop's Stortford, cites the iniquity of the tax burden placed on him by IR35. [In his letter] he concludes: 'We do not want employment rights or any special treatment- we want to be left alone to get on and run our companies, many of which are at the cutting edge of technology."
"The result is that small businesses are struggling. Our national competitiveness is falling away rapidly. In 1997, we were the ninth most competitive nation in the world; today we are the 19th, and I believe that that position is under question.
"There is little contact with or understanding of small businesses and family firms, let alone the self-employed. For example, the IR35 measure passed by the Government represents twice the annual budget of the Small Business Service for which the Minister is responsible. In truth, our regulatory culture is, as Lord Haskins of the Better Regulation Taskforce said, 'inherently autocratic, inflexible and remote.' Mr Digby Jones of the Confederation of British Industry said yesterday that even big companies are now feeling the pressure.
John Mann, Labour MP for Bassetlaw, addressed the debate briefly to tell attendees: "I am part-owner of a family microbusiness, which has self-employed people and which negotiated in respect of IR35 with the Inland Revenue on behalf of the Secretary of State for Trade and Industry."
John Baron, Conservative MP for Billericay, then spoke. He said: "Regulation and red tape have hit small businesses hard. Entrepreneurs in my constituency are concerned about that. We should be too, because small businesses are the lifeblood of the economy, accounting for something like 99 per cent of all businesses and nearly half of all employment, as my honourable friend intimated. If we strangle enterprise in the small business community, we inhibit the prosperity of the country as a whole.
"And yet the Government continues to make life difficult for entrepreneurs. The rising tide of regulation and red tape originates essentially from two sources. A good chunk is home grown and results from a natural tendency of politicians and bureaucrats to try to solve all problems with more and more regulation. The second source is the European Union. That situation will get gradually worse with the spread of majority voting."
Mark Field, Conservative MP for Cities of London and Westminster, then spoke. He said: "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 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."
Brian Cotter, Liberal Democrat MP for Weston-super-Mare, said: "A key to achieving regulation that complies with the model set out by the Better Regulation Taskforce is to understand the needs of small firms. The Minister would do well to read, on the British Chambers of Commerce website, the comments made in reply to its campaign to cut red tape. A gentleman called Henry, for example, runs a business that is based on the internet and e-commerce, and his comments on the website neatly summarise the way in which many people have been affected by the IR35 legislation.
"Given the Government's record, it is unsurprising that small businesses remain unimpressed by their rhetoric."
Philip Hammond, Conservative MP for Runnymede and Weybridge, then spoke. He said: "The term 'small businesses' embraces a range of enterprise sizes. Clearly, some small businesses are growing and seeking to accumulate capital; they may, in time, become medium enterprises. However, a large number of small businesses will never be anything other than just that. Many of them are one-man, self-employed enterprises. They, in particular, deliver a swing capability to our economy that is vital to the fast-moving responsiveness that we need if we are to continue to be flexible.
"I am sure that the Chancellor would recognise that as the economy and the fortunes of firms move, they must be able to adjust the costs that they bear. The one-man business is uniquely able to adjust its cost in response to the changing environment; it makes more money one year, less the next. Typically, such a business will not require large streams of investment capability so it can absorb changes in the environment in a way that larger and more structured businesses cannot. The price that small enterprises pay is a much higher rate of enterprise failure than is seen among larger enterprises, which is balanced by a faster rate of enterprise creation. We need to focus on the flexibility that microbusinesses and small businesses deliver because they provide a unique adjustment factor in the economy.
"One reason why the Government's IR35 initiative has been so damaging and destructive is the fact that it has hit at the most flexible part of the economy."
Mr Griffiths then addressed the debate. He said: "Reducing the regulatory burden is a key component in achieving our vision of making the United Kingdom the best place in the world to set up and run a business. That is why, for the fifth consecutive year, the number of small and medium-sized enterprises has grown, with the new SMEs outstripping those that are winding up. I know the value of the SME sector, and the present Government have taken, and will continue to take, key actions to minimise unnecessary burdens on business and to ensure that we achieve our vision.
"We have put in place strong guidance on preparing regulatory impact assessments for new regulations, and published guidance on how those should be carried out. We have established the ministerial panel for regulatory accountability, a strong body which has the power to simplify existing regulations and ease regulatory pressure on business. It does that by providing a strategic overview of the Government's regulatory plans and by calling Ministers to account over regulatory proposals.
"The Regulatory Reform Act 2001 will help to reform outdated and over-burdensome regulation. I have asked business organisations to suggest areas where that Act can be used. However, we are not working just on the design of regulation. We are also ensuring that clear and timely guidance is available to businesses to enable them to comply easily with regulation.
"We are now in the fifth consecutive year when the net number of SMEs has grown. That is partly because we have been putting in place a better, more favourable regulatory framework.
"We have taken practical steps to ensure that regulation, when required, is well designed and minimises the burden on business, while still achieving the policy intent. We have taken practical steps to ensure that good guidance is available and that it is easier for business to comply with regulations. We will continue to minimise the burdens on business and ensure that we achieve our vision of making the UK the best place in the world to start and grow a business."
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Richard Powell, Shout99
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