Small and medium businesses thrive on competition - Kevin Hollinrake

A speech by the Conservative MP for Thirsk and Malton in a Commons debate on achieving economic growth.

The most important thing in driving economic growth – the foundation of which is productivity, which leads to prosperity – is more competition.

Competition is very good for opportunity but also very good for consumers: it drives down prices and drives up service. When we started our estate agent business back in 1992, we quickly got to a leading market share in our marketplace. We were doing quite well.

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Two or three years later, we noticed lots of other “For Sale” and “To Let” boards popping up all over the place as new competition came in and was taking market share from us. Suddenly we were no longer the new kids on the block –the people who had got to No. 1. We had been pushed off our perch as the market leader.

Kevin Hollinrake.Kevin Hollinrake.
Kevin Hollinrake.

That made us look at what we were doing and become more efficient and more effective, work harder, and put a new package together so that we could once again become market leaders. That is the effect of competition– the driving force behind all the benefits for consumers that we see from competition. That is how it works in reality.

GK Chesterton said: “Too much capitalism does not mean too many capitalists, but too few capitalists.”

That is why we need to focus on competition, making sure that the environment is very attractive to new businesses starting up and growing – SMEs (small and medium-sized enterprises).

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All our policies should focus on small businesses, not on big businesses, which can generally look after themselves.

We have to look at the brutal facts, I am afraid. I was a bit disappointed, as I said earlier, by what the Governor of the Bank of England said to the Treasury Committee about some of the issues we are seeing with labour shortages, which are driving inflation.

We looked at some of the issues that SMEs, in particular, are facing in terms of accessing labour. In 2020, the last year we have reliable data for, net migration into the UK dropped by 88 per cent from 271,000 people down to 34,000 people.

People may say that is a good thing because we wanted to get a hold of immigration, and some of it may be due to Covid effects.

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Nevertheless, pubs, restaurants and farmers, all of whom are generally SMEs, are finding life very difficult. We have to make sure that there is an available supply of labour.

Another issue causing particular problems for SMEs is red tape at the borders – non-tariff barriers, as they might be called. There is a 45 per cent reduction in the number of SMEs exporting to the European Union. These are facts we have to confront and deal with. Levelling up is of particular interest to me as a representative of the North – from the North and for the North. We need to make sure that we level up properly and that the opportunities are spread equally nationwide.

It is a huge undertaking. In relative terms, the gap between the North East and London and the South East in terms of productivity per capita is as wide as it was between East Germany and West Germany prior to reunification.

It took 30 years and $2 trillion to narrow that gap. It is the right thing to do but it is a long haul.

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We need to get the private sector to invest, which was the lesson from East Germany.

Such things as the enterprise investment scheme and the seed enterprise investment scheme are vital for equity investment to SMEs. Those measures are due to expire in 2025, and we need to see them extended. I would also like to see enhanced tax breaks for the EIS and SEIS so that businesses in the less well-off parts of the country can attract more investment capital into those areas.

Finally, one thing could make a massive difference. Lots of SMEs in this country will not borrow – some 73 per cent would rather grow more slowly than borrow – which is partly because of the lack of trust between small businesses and big banks. Other parts of the world have something called regional mutual banks – Germany is a good example – that expanded lending during the financial crisis.

In the UK, we contracted lending during the financial crisis – about 20 per cent on either side. Regional mutual banks lend more into the economy at key times, and that could be a good policy for driving SMEs forward in our regions.