The election interview: Chuka Umunna
How will Labour help small businesses if the party forms a government? Here Labour's shadow business secretary answers our questions on policies, closing the gender gap, and challenging the Conservatives...
With less than two weeks to go until the general election, we wanted to find out exactly how Labour will support UK enterprise if it comes into government and what our readers – innovative start-ups and fast-growing businesses – can expect.
And who better to ask then Labour’s shadow business secretary Chuka Umunna.
Talking small business initiatives, red tape and schemes from the Conservatives that have been “hit by chaos and delay”, Umunna tells Startups the party will introduce a small business administration scheme, increase funding for female entrepreneurs and launch a British Investment Bank. Freezing business rates and “getting serious” about late payments are also on the agenda with the aim to make Labour “the party that makes a difference”.
Determined to “not make changes for the sake of it” if he becomes business secretary, read on for the full interview with Umunna…
What are five key business-focused policies that will ensure Labour gets the small business vote?
Labour will create an environment where businesses of all sizes can thrive, grow and create good jobs. Not every business wants to become a global giant, but every firm wants to succeed on its own terms. Labour will back the ambitions of our small business owners and entrepreneurs with the practical support they need. This starts with a stable macroeconomic foundation. Labour will cut the deficit every year, get the national debt falling and ensure a surplus on the current budget as soon as possible in the next Parliament. We will tell you where the money is coming from for every commitment we make, and none of our commitments require additional borrowing.
Second, we will freeze business rates, benefiting more than one and a half million small business premises. This will work out as an average of £450 over two years to businesses that benefit, rather than going ahead with another cut to corporation tax. We will further cut the costs of business by freezing energy bills to 2017 so that bills can fall but not rise while we reform the energy market, and ensure that small businesses are not rolled over onto more expensive tariffs without their consent.
Third, we will tackle head-on the problems of late payments with stronger requirements for larger firms to report regularly on their record of timely payments to suppliers – including what they have done to compensate their suppliers when paying late. We will take action on the unfair charges some are levying to join or stay on a firms list of suppliers, stopping the practice known as ‘pay to stay’.
Fourth, we will improve access to finance for businesses to start up and grow. Labour will increase competition on the high street with at least two new challenger banks. As the British Chambers of Commerce have called for, we will establish a proper British Investment Bank; supporting a network of regional banks with a core purpose of supporting small business growth in their area.
Fifth, we work with business to ensure they have the skilled workforce they need to thrive. We will give employers more control over apprenticeship funding and standings, asking in return that they increase the number of high quality apprenticeships within their sectors. And in addition to improving support for exporters and innovators, we will bring the support government provides together in a Small Business Administration, putting the voice of business at the heart of government as called for by the Federation of Small Businesses.
What existing schemes for small businesses do you think have been successful and will be retained if Labour is elected?
I know how much business values stability in the policy environment so if I am appointed business secretary I won’t make changes for the sake of it. My mantra will be ‘continuity wherever possible, change only where necessary’. After a slow start, the Start Up Loans scheme has made a positive impact. Similarly, our plans for a British Investment Bank will build on the foundations of the existing Business Bank.
Which schemes haven’t worked? Name and shame and tell us what you’d have done differently.
Under this government we’ve seen scheme after scheme which was supposed to help businesses being hit by chaos and delay. Some winning bidders were left waiting two years to receive their allocation under the the government’s flagship Regional Growth Fund and according to the latest figures, 46% of funds allocated still hadn’t been paid out to the winning bidders. And even when the money is paid out, it still hasn’t necessarily reached the businesses it was intended for.
Four pounds out of every 10 which was to be allocated through intermediaries – £687m out of £1.6bn – is still stuck with them. Or look at the list of failed schemes to try to get the banks lending to business, from Project Merlin to the National Loan Guarantee Scheme which only lasted for six months before it was replaced by Funding for Lending. The most recent FLS data shows that in the fourth quarter of 2014 net lending to business fell by £6.9bn and to smaller firms by £800m.
Overall, net lending to business has fallen by £55bn since 2010. Or look at the Government’s export finance schemes. The Export Enterprise Finance Guarantee helped only a handful businesses before it was put out of its misery. The scheme that replaced it – the Exports Refinancing Facility – was announced in July 2012. It was supposed to be up and running by the end of the year, but if was not until April 2014 that it was formally launched. And the Office for Budget Responsibility’s latest Fiscal Sustainability Report, published last summer, confirmed that it was yet to help a single business.
Exports have been a key objective and support seems to be in place. But what more needs to be done to get more businesses trading overseas?
The trade challenge for Britain is long-standing and deep seated. At 6% of GDP, we currently have the worst current account deficit since records began but before we get to how we can improve support, we must first ensure that we don’t go backwards – by putting access to our biggest export market – the European Union – at risk.
Rather than flirting with exit, we should be working to reform the EU so that it works better for us. Over three million jobs in the UK are linked to trade with EU countries. The EU is the key that unlocks the door to emerging markets beyond, ensuring faster access and on better terms negotiating as part of a major trading block. But we also need to do more to support exporters, which is why Ed Balls and I asked the chairman of Agusta Westland, Graham Cole, to lead a review on the improvements needed. So far, Westland’s interim report has identified problems of weak political leadership and accountability, and the need for better support and advice.
The Conservatives promised a bonfire of Red Tape and said that it would only be introducing the “right kind of regulation”. Has this been achieved?
It’s about ensuring that markets work well in the interests of all,and that where it is needed it is well proportionate to the intended objective, and designed to take account of the small firm. Ensuring that kind of smart approach to regulation will be one of the main roles of the Small Business Administration.
Conservative business minister Matt Hancock recently announced changes to the Prompt Payment Code with 30 day terms as standard to stop the “unacceptable” late payments culture – what will Labour be doing to improve and enforce the issue of late payments?
It is wrong that smaller firms end up bankrolling larger firms they supply and late payment is a national scandal. The most recent figures published by BACs show that small businesses are now carrying the burden of almost £40bn of overdue payments. With 60% of small businesses reporting that late payments are a problem, and the average business waiting for around £38,000 of overdue payments, it is no surprise that late payment is linked to around one in five business failures.
The Conservative-led government dragged its feet on this issue, prevaricating on a commitment to name and shame persistent late payers and delaying the implementation of an EU directive which would have made a difference. Labour would get serious on this issue. The challenge is to shift the burden away from small businesses having to ask for interest payments, towards interest payments become a matter of routine. To achieve this, Labour would require large firms to produce a quarterly report to HMRC listing all payments which have been paid 30 days or more after the supplier’s agreed payment terms, and confirming that they have paid interest equalling the Bank of England base rate plus 8% to compensate the supplier for each day of overdue payment.
A company found to be filing false reports would be forced to pay the interest owed plus any administrative costs to HMRC. This proposal would shift the balance in the relationship by making interest payments automatic, and is supported by the Federation of Small Businesses and the Forum for Private Business.
Recent statistics show that the number of high-growth UK companies with turnover of over £2.5m is in decline; down 2.2% in the year to March 2014. How will Labour look to turn more start-ups into scale-ups?
I think this is the big challenge – how can we get all firms to succeed on their own terms and reach their potential? The disproportionate impact that a small number of high-growth – or so-called ‘gazelle’ – firms can have on job growth in particular is well documented, and making it easier for firms to experience these periods of rapid growth would pay large dividends. There are specific programmes that are proving effective in helping firms grow – like Cranfield’s Business Growth Programme, Goldman Sachs 10,000 Small Businesses, or the Stock Exchange’s ELITE programme – based on providing holistic support to existing management.
Sherry Coutu’s recent Scale-Up report highlights the value of simply making information about growing firms more available, and increasing the local linkages. And we’ve asked the entrepreneur Simon Franks to report for us on what we can do to better support high growth businesses, and he’s looking particularly at the tax system. So there are a lot of specific things that can be done to focus on the scale-up challenge but we need to start by getting the basics right; in terms of access to finance, skills, access to markets, the costs of doing business, business support and the like.
You’ve previously mentioned that you would like to introduce a ‘small business administration team’ similar to that in the US – can we expect to see this launched under Labour, what would it do, and why is this a significant promise?
Yes, you can. It is something that the Federation of Small Businesses have called for, something that our Small Business Taskforce recommended, and an idea developed in a report to me by Lord Adonis. It is a significant promise because it will bring real focus to policy directly related to small business, give small business a voice at the heart of government on the much broader spectrum of policy that has an impact on small business, and will ensure that support for small business works well and is properly coordinated.
Access to finance is a key issue for small business owners and entrepreneurs – how will Labour support small and growth business funding?
You’re right that it is a key issue, and I’ve already explained the repeated failure of government scheme after scheme to address the problem. That’s why we say more fundamental reform of the banking market is needed. We need greater competition within banking, to ensure that banks are working hard to serve their customers not take them for granted.
We also need to increase competition to banking, which is why we support the development of alternative funding sources, from peer-to-peer platforms like Zopa and Funding Circle, or invoice factoring and discounting enabled by firms like MarketInvoice. Government must play its part too which is why we are considering options for better balancing the tax system as regards debt and equity finance. And it is why we will build the Business Bank into a fully-fledged British Investment Bank supporting a network of regional banks. The funding gap for small businesses has been a long-standing problem and it is time we properly addressed it, once and for all.
The enterprise space is largely male-dominated– how will Labour encourage more women into business and support female entrepreneurs?
You’re right that there is a significant gender gap when it comes to entrepreneurship, with men about twice as likely to be starting or running new businesses as women. The Women’s Business Council say that closing the gap would mean a million more women entrepreneurs. As a nation we are missing out on the wealth that could be created if the gap was closed, of course along with the extension of opportunity for women and the increased autonomy that comes from running your own business.
As a party, we have sought to showcase the stories of many successful women entrepreneurs, through NG, our entrepreneurs network; where have heard from people like Kanya King, founder of the MOBOs, Sarah Wood, co-founder at Unruly, or young entrepreneurs like Emily Brooke, founder of Blaze. Seeing role models you can identify with is important for all budding entrepreneurs, but may be especially valuable to women. The confidence to go for it is one of the barriers commonly identified for women, and so these stories are important as they show what is possible.
That has been the case for many of the male entrepreneurs from all kinds of backgrounds who have spoken at our events. So role models are important, but there are practical issues too. Access to finance is cited by many female entrepreneurs as a problem, with some banks wrongly viewing women-run businesses as more risky propositions.
I’ve already mentioned the failure of so many schemes of this government when it comes to improving access to finance, but let me add one more to that list. The Aspire Fund is a fund that makes equity investments in women-led businesses, but less than half of the £12.5m allocated has been invested. I’ve already said what we would do to improve access to finance but the Aspire Fund is certainly one place to begin. Childcare remains a perennial issue for working parents and is frequently cited as a barrier for women starting businesses, so our plans to extend free childcare for three and four year-olds to 25 hours a week and to ensure parents have access to wrap-around childcare coordinated by schools should make a real difference.
Finally, tell us what you think are the three things that concern small business owners most?
I think every small business has its own challenges – from its history, internal organisation, or external environment. Of the common themes, I’d say access to finance, the cost of doing business, and skills. Those are all areas where government can make a real difference, and the next Labour government will.