"DTI - Friend or Foe?", Federation of Small Businesses (Blackpool Conference)

Speech by Norman Lamb delivered to Federation of Small Businesses on Wed 21st Sep 2005

Norman Lamb:

I'm grateful for the opportunity I've been given to speak to you all today. The needs of small business are an integral part of Liberal Democrat business policy, and as DTI Spokesman I'm well aware of the importance of small business to the overall economy.

By the DTI's own figures, businesses with fewer than 50 employees make up over 99% of UK enterprises, accounting for almost half of UK private sector turnover . Our party recognised this fact in our election manifesto earlier this year, describing small business as, quote, "The Engine of the Economy".

As you may also know, that same business manifesto advocated the abolition of the Department of Trade and Industry, and it's that subject on which I'd like to focus today.

Essentially, we believe the DTI has lost its central mission.

The Lib Dems are proud to be a pro-business party, and we can see no need for an interventionist government department meddling with what is essentially a modern, market led economy. The DTI has become an anachronism, and that's why my party would still advocate its abolition.

Where trade and industry matters are concerned, it is no longer the role of the Government to be imposing their principles on the market place. Rather, I believe it is the Government's job to uphold free and fair competition with the minimum of regulation. This is what businesses ask for, but the DTI does not answer their needs satisfactorily.

Instead, we've seen intervention from the Department that has backfired in the most conspicuous of ways. Meddling in the failing Rover business in 1999 arguably cost the Midlands many jobs in the longer-term. And then when the Rover plant at Longbridge finally closed down earlier this year, the DTI announced it would be investigating the reasons for the company's collapse. Whilst an open and honest inquiry into the Rover saga is desirable, it is questionable that the DTI should be playing the role of investigator whilst also being fingered as an instigator of the company's woes.

There is also a considerable conflict of interest between the Department's role as an advocate for industry and its responsibility to the consumer. How can consumers have their concerns adequately addressed by a body with concurrent responsibility to protect industry? And how can the DTI be best serving UK business when its same resources are being used to deal with consumer issues?

British industry deserves better, and so do consumers.

The Lib Dems propose this conflict is reconciled with the establishment of a Minister for Business and a small but effective Department for Consumer Affairs. This way, business is represented at the highest level, as it ought to be, and consumers have a voice within government working in their best interests with no contradictory drain on resources.

By abolishing the DTI, we can better serve taxpayers - both business tax payers and individual tax payers - whilst simultaneously cutting away needless bureaucracy.

Right now, there is a small army of civil servants and Ministers working at the DTI - more Ministers in fact than at any other department. This seems rather a wasteful use of resources, given that every relevant function of the DTI can be transferred to more appropriate departments.

Employment issues, for example, do not feel at home under the auspices of the DTI. Surely the most suitable body to hold responsibility for such matters as individual employment rights and health & safety would be the Department of Work and Pensions?

The same goes for science and research - this is a vital area for UK businesses and needs to be well-managed in order to keep us at the forefront of global innovation. But wouldn't science and research be better served by the Department of Education - a department currently catering for all other aspects of study? Every useful function of the DTI can be transferred to another department.

It's also clear to me that small business is not being best served by the Department. As has always been the case, new business ventures face a real struggle to survive beyond the first few years.

So why is this?

In conjunction with my Liberal Democrat colleague, Shadow Chancellor Vince Cable, we launched a competitiveness survey in August, which was the first step in what will be an ongoing conversation with business. We're committed to listening to small business, and from what I've seen of the survey results so far, there is a lot to hear.

A particular issue of concern is over-regulation - something which is raised time and time again by small businesses. Employment regulation, tax regulation, health and safety regulation - these are all issues taking up far too many resources and causing far too many headaches for small businesses.

The responses to the survey are still coming in, but early indications suggest that firms are far from happy with the current regulatory environment. When faced with the statement 'The UK regulation environment is about right', over two thirds of respondents to date either disagree or strongly disagree.

Excessive regulation can stifle businesses and lead to a misallocation of resources. Small firms are hit doubly hard by this, as a higher proportion of their time and money is spent on filling out forms and ensuring they are conforming to the latest government standards.

A Liberal Democrat government would be committed to cutting regulation by applying a practical approach to freeing industry from regulatory burdens. This can be done via two approaches. Firstly, appraisal of existing mechanisms of deregulation, such as quangos and Regulatory Reform Orders. Secondly, the development of a 'deregulatory strand' through business policy ideas, similar to the environmental strand we have had for some time in our party. We will require an independent impact assessment on every new regulation.

We also believe in helping small businesses unfairly burdened by business rates, which, according to a 2000 Green Paper, represent 7.7% of small business turnover. This is in comparison to just 2.5% of the turnover of a medium sized business, and 1.4% of the total turnover of large businesses . A Lib Dem government would rectify this with the introduction of rate relief valued at £1500 for those with a rateable value below £25,000. The shortfall in revenue would be made up by a corresponding rise in rates liability for business with a total rateable value above the allowance threshold, though the system of adding poundage supplements in proportion to the size of the business means that those falling just outside of the £25,000 threshold would face less of a liability than larger businesses. This would ensure a fairer system for all.

But the DTI is unresponsive on the needs of small business. Too unwieldy to make timely decisions on the issues impacting on our economy, the DTI is somewhat of a dead duck when it really counts.

The much publicised Rover collapse is one example, but there are many others.

Whilst I'm pleased to have been involved in the new Consumer Credit Act, it's taken far too long - at 35 years - to revise the statutory framework. The credit industry has changed dramatically in that time frame, with massive product innovation and a revolution in the availability of credit. To wait 35 years for a new Act is neglecting our obligations to consumers.

And the future of Royal Mail - a subject I have taken particular interest in over recent months - has been put on ice by a Department and a Secretary of State who have been indecisive and unconvincing when it comes to committing to some form of action.

From January 1st next year - less than four months away - Royal Mail will be operating in a fully liberalised market. European postal companies, such as Germany's Deutche Post and TPG of the Netherlands, may well be looking for a share of the UK sorting and delivery business, yet Royal Mail is still not in good shape to compete on its own turf. There is an urgent need for a multi-billion pound investment in the company, yet Alan Johnson is seemingly at a loss as to how to achieve this. The Labour manifesto rules out any change in ownership of the Royal Mail, and many party backbenchers have already laid down their cards and said 'no' to any form of employee ownership.

I don't believe this is adequate performance from a department responsible for the welfare of British industry. If the DTI is satisfied in being an interventionist body, it must be wholly it is making tough decisions when they're needed. Ignorance may be bliss, but it won't solve the problems of Royal Mail. We shouldn't accept complacency, and we shouldn't accept such short-term thinking.

The skills gap, for example, is another concern of business. A shortage of properly trained workers holds back the development of industry and restricts innovation. This, in turn, can curb wealth creation. It's vital that we close the skills gap by investing NOW in both basic training and, where appropriate, more advanced training. A survey earlier this year by the British Chamber of Commerce revealed that 43% reported difficulties finding skilled workers, compared with 29% in 1994.

It's particularly worrying that having won the right to host the Olympics in London, the construction industry still complains that it cannot attract the necessary tradesmen. Another survey by the Chartered Institute of Building this year found that two-thirds of its members questioned felt the current workforce was not sufficiently skilled. More so, 91% of respondents anticipated a skills shortage beyond 2005, and construction firms also reported they were unable to recruit enough trainees.

In conclusion, the DTI is not serving its purpose. The Liberal Democrats want to create a de-centralised environment for business, free from the meddling of an out-dated department. The DTI has little relevance to today's marketplace, and it has little relevance to the thriving liberal economy we would like to see.