Bill Esterson, shadow minister for small business, arranges to meet me at Portcullis House, the ominous-looking building beside the Houses of Parliament.
Once past the beefed-up security (“It’s because of Brexit,” Esterson grumbles), it’s a jolt to see many of the faces you see on the nightly news: over in one corner sits Robert Peston, while Andrea Leadsom and Nicky Morgan sit at others and James Cleverly wanders through waving at people. Clearly, this is the beating heart of Government.
Esterson, 52, became an MP in 2010 having previously run a training consultancy with his wife. Their small business employed 14 people. Then the Financial Crisis of 2008 happened, and their bank called in its overdraft. The Estersons used their savings to repay the bank and pay staff salaries.
“It’s a story I hear again and again from businesses,” he says. “It’s absolutely essential that we put in support and advice and really back our small firms.”
Esterson, who became an MP in 2010 and has been shadow small business minister since 2016, is clearly what used to be known as “a red-hot Socialist” in the old parlance. Passionate about the problems facing small business, once he gets going, he’s difficult to interrupt.
He sat down with Small Business to talk about Labour’s plans for a Small Business Administration, rebalancing the regions and localised procurement for small firms.
In the past, you’ve described Labour as ‘the true party of small business’
We have a government that’s attacked business consistently, not least through the reckless attempt to take us out of European Union with no deal, which seems the preferred option of the majority of the Conservative Party.
We have two Tory leadership contenders who say they will do that in order to get themselves elected as party leader. That opens up a space for the Labour Party. In good faith, we tried to compromise a good economic relationship with the European Union, which was consistent with what most business organisations were saying after the referendum. The Government chose not to work with us. It’s very clear we have to put the deal that’s been negotiated by the outgoing Prime Minister back to the public and the only position that Labour can take on that is to campaign for remain. While the current deal gives a transition period, the endpoint of that transition period is wholly unsatisfactory and will not be in the interest of business or the economy compared to where we are now, so the only conclusion is that Labour is the party of business and the Conservatives are not.
Jeremy Hunt has pledged to cut corporation tax from 19pc to 12.5pc, yet Labour plans to increase it to 26pc. How is that meant to make small businesses feel Labour is on their side?
That 26pc is the average corporation rax across Europe. Worldwide that figure goes up to 29pc.
In any case, most small businesses would be completely unaffected because they don’t pay it. Either they’re not incorporated or they’re not earning enough.
And even if they do pay it, we’ve committed in the 2017 manifesto to reintroducing the small companies rate for the first £300,000 of profit at the current 19pc. You’ve got to give small companies much more favourable terms.
There’s not been a great clamour for these corporation tax cuts. If you look at their other policies, apart from support for the very largest corporations with corporation tax cuts, and a lax regulatory environment, the Conservatives make it extremely hard for smaller businesses to compete on a larger playing field.
Businesses, like individuals, need decent public services, health services for their staff, roads to be looked after, a decent transport service and strong broadband. The fact that we only have the 19th-best broadband in the world but are the fifth-largest economy is catastrophic for business.
By any objective valuation, the Conservatives have lost the claim to be the party of business.
‘If we’re going to transform into a zero-carbon economy, we need small firms to lead the way’
What would a Labour government do specifically to support small business?
First, it’s about investing in infrastructure. We’re talking about a National Investment Bank that delivers regionally. It’s the regions outside of London that are missing out. We have to put investment in transport. Some measures say that transport in the north of England only gets a seventh of what transport in London gets. There’s no Crossrail of the north, yet business is crying out for it.
We need proper access to finance and a fair regulatory system, intervention which prevents businesses from undercutting because undercutting and exploitation of workers are two sides of the same coin. When you’re allowed to get away with paying effectively less than the minimum wage, which some larger firms have been allowed to do, either by bringing in agency workers in from overseas, or by using strict regulations on toilet breaks, you give yourself a competitive advantage while exploiting workers.
One policy that you are committed to is extending the £10 minimum wage plans to under-18s
That’s right. We think that if you pay workers properly, it’s more tax to collect from businesses. It must be in your interest that workers can afford to buy your goods and services. It’s an entirely productive way of looking at the economy. The most successful economies, according to the IMF – hardly known to be a bastion of Marxism – are those where you have high wages because those wages are used to buy goods and services. The problem we have in this country is far too much money ends up used to buy assets for a relatively small number of people. That money doesn’t end up circulating in the economy. You need better distribution to have a better economy.
And we also need a proper social security system that helps people set up businesses as well as get them back into work.
So, Labour sees the solution as to how to revitalise small businesses as being through large infrastructure projects?
It’s a combination of infrastructure and making sure money is available for start-up and scale-up businesses. I foresee using regional development banks for much better access to finance. The feedback I get is that most larger firms will find that money. The problem is smaller firms, where mainstream lenders aren’t really interested and it’s not appropriate to take equity stakes either. Historically, they would always have been able to borrow to bolster business plans. If you look at our lack of productivity, I think it’s directly related to our lack of access to finance. Businesses are reluctant to invest in technology and therefore they see productivity lags.
‘If you look at our lack of productivity, I think it’s directly related to our lack of access to finance’
This National Investment Bank would have regional sub-banks that would lend to small businesses?
Very much so. It’s not really about creating new banks, it’s about what’s there: someone like CYBG [about to be rebranded Virgin Money], which has a good regional presence in northern England and Scotland, or The Cumberland building society, which has a business offering.
We’ve got to use the existing network of Local Enterprise Partnerships (LEPs) because they’re not strong enough – they don’t have the resources or skillsets. We’ve got to make those growth hubs work around the country.
One of the problems at the moment is that we’ve got 3,000 organisations offering support and advice for business. Nobody knows which ones the good ones are. The only sensible way of doing this is having something at state level saying, yes, we recommend these organisations, whether it’s advice or finance. We’ve got to identify what’s best practice and share it and scale it across the country.
Tell me about your Small Business Administration being a one-stop-shop for small business
The US Small Business Administration was set up in 1953 and it recommends a panel of debt or equity financiers, paying for itself by raising a levy from those organisations. It’s a billion-dollar organisation. They have advisers, mentors, training, a responsibility for the delivery of US government procurement – which is a key driver – and responsibilities towards minorities to help more women entrepreneurs. America’s much better than getting women into business than we are.
When we get into government, we’re going to have to work out the detail of this, but certainly regional delivery and regional finance has got to be the right way to go. If you’re a business in the North East or the North West, it’s very hard to find an investor. If you’re a London business, there are lots of options.
We’ve got to rebalance our economy and find our potential stars, our start-ups and scale-ups.
Government procurement remains a big issue for SMEs. Big companies elbow small businesses aside when it comes to Government contracts. Yet, if I was a civil servant, I’d probably think, ‘Well, the Capitas and the Sercos have delivered for us in the past – why take a risk?’
Well, I think as we saw with Carillion, it becomes a house of cards. To avoid that, we need to make procurement smaller scale.
The way money is squandered by outsourcing to these big corporates delivering public services is appalling. There is far better quality to be had by supporting small businesses directly. A small firm will be somewhere in the supply chain of a large firm, which is a terribly inefficient way of running things. What I would like to see is for small firms to trade directly with Government or councils or health authorities or schools. You can do that either by that by creating parcels of contracts or by encouraging small firms to create partnerships with other small businesses to create their own networks. Government should be more entrepreneurial when it comes to this apparently low-cost option with big firms.
Using firms that are more local and have a better grasp of the area they’re delivering the service in is a good way to enhance quality. If you localise procurement, you’re also reducing your carbon footprint, reducing congestion and delays. Local procurement is more sustainable.
So, the twin pillars of Labour small business plans are redistribution and devolution?
That’s exactly right. It’s about devolution.
What’s Labour going to do about the running sore of late payments? Do you have plans to enforce the Prompt Payment Code?
Late payment was one of the big scandals of Carillion. Around £2 billion was owed to 38,000 firms when Carillion went bust. You’re never going to get that money back.
At the moment, there’s a consultation going around about improving the Prompt Payment Code. It’s too late for consultation. Either we have a Prompt Payment Code that means something, or we don’t. Government contractors should be paid within 30 days and that should be enforced throughout the lower-down supply chain with indie suppliers. If you are a tier one contractor, you should be paying your suppliers within 30 days. And we should have project bank accounts that are protected in case of insolvency. We’ve managed to do it in England with the Tenancy Deposit Scheme, why can’t we do it with Government contracts?
In 2017 our manifesto, we committed to a series of fines for persistent late payers, which is the Australian system, but in the end, if you have a procurement system where that tier-one supplier face stringent punishment for breaching conditions, then it can be self-policing. Having the teeth to enforce is important.
Late payment costs small businesses 50,000 failures a year. It’s the biggest source of business failure. Late payment is a business model exploiting smaller firms. I’ve seen how big businesses treat smaller suppliers, and there are too many large companies out there who play fast and loose.
If you can make sure that large firms have to treat people decently, whether it’s the supply chain or how they treat workers or the environment, it makes it much easier for everybody else to do it too.
Having a productive and sustainable economy has to be right. Corner cutting inevitably means not doing the right thing in your attitude to the planet, as well as how you treat other people.
What do you think of Jeremy Hunt’s Tory leadership bid pledge to scrap tuition fees for graduates who set up businesses employing 10 people for at least five years?
It sounds reasonable, but why stop at graduates? Why can’t we do something for school leavers or apprenticeships or those taking the vocational route as well?
Hunt has also pledged to scrap business rates for independent high-street retailers across five regional cities
It sounds like a bit of a gimmick to me. And why just five regional cities, when it’s the town that are hurting?
There’s a real problem with business rates because it’s a fixed cost of doing business. I’ve argued for a complete reform of business taxation. The debate around business rates is do you replace it wholesale with a sales tax. The beauty of business rates is that they’re easy to collect. But they don’t work for online retailers and of course business rates out of town are a lot less.
We’ve said that we would have annual business-rate revaluations so you wouldn’t have these massive hikes every eight years, as under the current system.
Boris Johnson’s team has talked about a small business representative who works across Whitehall scrapping regulation and cutting bureaucracy
Boris just says what pops into his head and then doesn’t think about it again. I treat the utterances of Boris de Pfeffel Johnson with a ladle-full of salt.
Boris Johnson has also mooted having around six freeports into which manufacturers can import and then export goods without tariffs
Freeports have been completely discredited by the United Nations as magnets for money launderers and organised crime. They undermine the rest of the economy, are of no use to small firms at all, and, in the end, turn this country into a tax haven to attract the sorts of operations which give capitalism a bad name. Freeports will not lead to prosperity to the vast number of people in this country, whether they’re running a business or not.
What you do need are policies that mean small businesses are being looked after. Either through opening up procurement or making sure they’re being paid on time.
What would you say to entrepreneurs who are instinctively afraid of a Labour government?
Most small businesses have good values; they want to do the right thing and treat people well, pay well and give back. What’s not to like?
Labour policies will benefit smaller firms because we will create a fairer economy that’s fairer to workers and rebalances the disadvantages small firms face against larger corporations. We’ll do it through a fair tax regime, we’ll do it through investment in infrastructure and by making sure the public realm is in a good place.
Small firms want to play their part in their communities, and we want to help support them doing that. The only businesses the Conservatives care about are the large multinationals, who manage to dodge their taxes anyway.
We want all business to be able to start, thrive and grow because that’s what a successful economy looks like, where the innovation and creativity we depend on if we’re going to survive – not least because of the carbon challenge. If we’re going to transform into a zero-carbon economy, we need small firms to lead the way.
Further reading
Lorely Burt: ‘Lib Dems would bring in NI holiday for some small employers’
