Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by the British Chambers of Commerce


  1.1  The British Chambers of Commerce (BCC) represents the network of 60 accredited Chambers of Commerce in the UK. To gain accreditation each Chamber has to achieve a rigorous set of quality standards that are managed and developed by our business membership. Each Chamber is run by local business for local business, with each Chamber's Board and Committee structure drawn from its membership.

  1.2  Currently over 135,000 businesses benefit from membership of Chambers in our accredited network, from growth-orientated start-ups to local and regional subsidiaries of multinational companies, in all commercial and industrial sectors, and from all over the UK.


  2.1  To us, the SBS has two primary functions:

    (a)  to act as an advocate, ensuring that government policy across all departments is supportive of small businesses and in regulating that departments "think small first";

    (b)  to provide top quality business support services.

  Through our regular dealings with SBS, and that of our member Chambers, we are well placed to comment on both these facets and their development over the recent past.


  2.2  We recognise that this is ancillary to the main focus of the Committee's current investigation and so we will keep our comments brief. Having experienced the work of the Small Business Administration in the United States, and in particular its Office of Advocacy, we are strong and leading proponents of introducing a similar office into the UK. We were therefore pleased when the Government announced the formation of the Small Business Service and thus far, have been satisfied with the way that it has gone about its advocacy role. Its staff, who for this function are primarily spread across its Strategy, Research and Communications Division and Regulatory Action Division, have been keen to build a rapport with us and importantly with the business people we represent. The enthusiasm with which they have approached their tasks and the willingness they have shown to get out and communicate with business people have impressed us.

  2.3  Ultimately, to be successful in its advocacy role, the SBS relies on the willingness of other departments to work with it and thus far, generally we think they have. However, two issues we would highlight are:

    (a)  That the SBS cannot grab the limelight for a lot of the work it achieves within government and therefore there is a danger that its efforts are undervalued.

    (b)  The need to oblige departments to work with it more, for example in the production of regulatory guidance.

  2.4  Addressing both these points the SBS needs some high profile practical early wins, such as a range of easy to use guides on legislation which they have helped to shape and which carry their logo or kitemark.

Business support services

  2.5  To make best use of the resources it has the SBS has to consider the most efficient methods of delivering its services. We therefore broadly agree with the approach it has adopted of making basic information and advice available via its national internet gateway and telephone helpline, thus freeing up resource at a local level to devote to the delivery of more complex support. For example, the packaging of different services from both public and private providers, to assist firms that are perhaps seeking to grow or have a specific sectoral need.

  2.6  The BCC believes that to ensure that local support services meet local business needs they are best provided by organisations owned and led by local businesses. We therefore regard the Government's decision to allow private sector organisations to bid for Business Link franchises as a step forward and many of our member Chambers of Commerce in England have been involved in submitting bids, mostly in partnership with other local providers. Of the 47 franchises on offer, 30 have a significant Chamber of Commerce presence. Many other member Chambers also have an interest in franchises, as contractors providing services to franchisees.

  2.7  Those Chambers that bid for franchises were genuinely excited at the prospect and encouraged by the comments of the SBS Chief Executive and Minister for Small Business that what they were seeking was entrepreneurial and innovative bids that had a strong emphasis on outputs.

  2.8  They were therefore surprised at the start of this year to receive the first drafts of SBS contracts, which focused very much on inputs, with page upon page of financial, operational and information requirements that would tie-up resource that should be customer-facing. This seemed inappropriate from an organisation that has the function of championing against red tape in Government.


  3.1  The key focus of Chambers, the SBS and former Business Links has been to ensure that from the business customer's perspective there has been a seamless transition from the old to the new network, and we think that has been achieved.

  3.2  However, the most visible aspect of this transition from the BCC's point of view has been that bit which the customers don't see—the contract negotiations that have taken place over the course of this year between the SBS and franchise holders. Member Chambers and other franchise holders have expended a great deal of time and expense on legal bills trying to ensure that the contracts drafted by the SBS would be acceptable to all involved. At this point in time, that is not the case.

  3.3  However, the Small Business Service Chief Executive and Small Business Minister have both taken a keen interest in the process and accepted that the contracts in their current form need a further period of review. To ensure in the meantime that service provision continues in a seamless fashion franchisees were offered one of the following three options to work with at the start of the new network going live on 26 March:

    —  to sign the contract on the basis that it would be reviewed during the next three months;

    —  to sign the contract and a side letter; and

    —  to sign a three-month funding letter, which allows staff to be paid and services to continue, without the franchise contract being signed.

  3.4  Clearly this has been a learning process for all involved. In retrospect, more time should have been devoted to the contract negotiation process and it should have taken place at an earlier opportunity. As it is, starting the process on 15 January for completion by 26 March has proved too tight.

  3.5  The BCC and Chambers have had to take the lead in the contract negotiations on behalf of franchise holders, because there are no other obvious alternatives. In future negotiations of this kind, however, it might be prudent to establish a negotiating committee that could represent franchise holders.

  3.6  All parties have approached the contract negotiations with flexibility and the willingness of SBS officials to listen should help in the review that is now taking place. Without wishing to get in to the detail, which might compromise negotiations, several issues remain to be resolved on the volume and tone of the contract documents, the financial controls on and requirements being asked of franchise holders, and issues over branding.

  3.7  Looking more broadly, we have fears over two of the underlying assumptions behind much of the detail in the contract that we believe will get in the way of the network being a success:

    (a)  The SBS and other government-backed services to businesses are not operating in a vacuum, but play a part in a much larger marketplace of business services, usually commercial, but also including Chamber of Commerce, local government, RDA, and EU initiatives—many of these are established brands amongst SMEs. If the Business Link brand is going to achieve a profile and credibility in this marketplace, the branding guidelines need to be rethought to enable it to work with other brands where appropriate, and the SBS needs to be committed and funded to deliver regular and ongoing national promotion campaigns for the next three to five years, not occasional blitzes.

    (b)  The government is keen to encourage private sector skills and entrepreneurship in the network, but is then establishing sets of rules that make it very hard for operators to work entrepreneurially. The ability to generate surpluses from efficient and innovative delivery of the contract is the best incentive for such organisations. Government seeking to control surpluses and reserves generated from the contract directly defeats this incentive. We understand, though this is difficult to confirm given the way that contracts were negotiated, that less stringent contractual arrangements may have been agreed with some private company-led contract holders, which allows them a profit margin, but that is not the case with Chambers of Commerce.

  3.8  In summary, what the franchise holders ultimately seek is the vision they were sold, of a network, that puts quality and innovation ahead of standardisation and where control is exerted through the eyes and ears of the various SBS regional managers, rather than reams of paperwork.


  4.1  The Committee will be aware that several Chambers of Commerce had merged with their local Training and Enterprise Councils and inevitably the transition to LSCs has meant they have had to demerge. At a personnel level, this has caused a great deal of anxiety and sadness as staff have been made redundant or transferred to other organisations, the same being true with some Chambers that were co-located with their local Business Links.

  4.2  From our perspective the merged organisations, CCTEs, were very effective. Our own benchmarking exercises showed they were well regarded by the businesses that used them. Importantly, they encouraged business input into local labour market issues, putting employers' needs at the heart of government-funded training provisions. This aspect was one of the imperatives that we wished to see continued in the LSCs.

  4.3  In recognition of this the DfEE gave a commitment that all local LSCs Boards would have a majority private sector presence. In practice, however, this has been interpreted very loosely. Many of the representatives of the private sector have qualifications to be called that, which are very tenuous.

  4.4  There have been some difficulties over disentangling the ownership of assets. Again, however, from the customers' perspective, we think the transition from TECs to LSCs has been relatively seamless.

  4.5  However, LSCs have only picked up the skills element of the TEC mandate. Local Business Link operators have picked up the business support element, but the role of TECs in engaging local businesses in wider economic development and regeneration has not been picked up. RDAs have been given very modest additional funding to seek to cover this gap, but one of our Chambers cites that it amounts to less than 20 per cent of the funding the TECs were ploughing into local economic development and regeneration, and RDAs are not well positioned to engage and involve local businesses in leading local projects in the way that TECs were. As a result, there is a real risk that the extent and quality of business engagement in leading local economic regeneration initiatives, which has been built up over the past 10 years, will be lost. The Government has recognised consistently the gap they have now created, but has produced no credible proposals for filling it.

  4.6  The policy statements for the LSCs consistently identify both individuals and employers as the twin customers of the LSCs. However, if the control mechanisms do not reflect these two groups of customers, then the policy will fail. The two most powerful control mechanisms are the funding mechanisms and the quality inspection mechanisms. The funding mechanism for the LSC and its providers has been set up in such a way that funding allows the individual, not the employer, and the inspection mechanism is almost entirely focused on the trainee, and tells the LSC very little about whether the training is meeting employer needs. There is therefore a need to radically rethink control mechanisms, so that there is some control over the LSCs' delivery of the needs of employers as customers.

  4.7  Finally, there has been a significant cut in the budget available at local level because the allocation to individual SBS contract holders from their LSC included VAT. This significantly reduces the funding available to individual businesses in the vital area of upskilling, when lifelong learning is offered as a key element of the Government's commitment to education.


General impressions

  5.1  The purpose of regional enterprise initiatives should be to build on the strengths of each region and tackle its weaknesses. Some of our regions generate GDP per capita, which exceeds the EU average to a marked degree. Others significantly underscore it. Each region's businesses, however, can do better and where it is appropriate to use public money they should be supported to do so, but their needs will differ.

  5.2  With that in mind a lot of regional initiatives are best designed and developed at a regional level and in keeping with that we therefore welcomed the development of the Regional Development Agencies in England.

  5.3  Initial concern about how far RDAs would be business focused have generally been answered. Each RDA Board has substantial business representation and the Economic Strategies they have developed rightly focus upon business needs.

  5.4  The BCC has been impressed that RDAs put together Economic Strategies in the very short timescale dictated by Government. However, strict guidance meant that all strategies appear very similar. All regions, for instance, want to be in the top 10 per cent of EU regions for GDP per capita. It might be that the South East can do this over the 10 year timescale of the Strategies, but will all regions be able to reach this standard? A fear we have is that the 10 year timescale of these strategies makes it very difficult for anybody to be held to account for their delivery and some clear interim targets are needed.

  5.5  The strict guidance also meant that many of the Strategies try to be all things to all people. For instance, some business representatives on RDA boards have complained about attempts to accommodate both environmental and economic agendas and that the result has been a lack of leadership and clear strategy.

  5.6  The BCC is particularly supportive of the emphasis on regional clusters, which is one aspect where the RDA Strategies have tried to be innovative. That said, the BCC is concerned that planning policy needs to be brought into line to ensure that these are developed effectively. Similarly, there needs to be a clearer and more robust relationship between Regional Economic Strategies, Regional Planning Guidance and Regional Transportation Strategies.


  5.7  One of the most fundamental problems the RDAs faced at their inception was the lack of autonomy they had over their resources. The BCC had raised this in the design phase of the RDAs. However, these concerns were generally answered by the last Comprehensive Spending Review (CSR). Initially, much of the RDAs' money was pre-allocated, so that RDAs were primarily just administering funds. This gave them very little ability to define priorities or pump-prime projects. The CSR changes mean that money from all four funding Government Departments will go into a single pot (giving more flexibility) and that there is new money. This includes an extra £15 million in Regional Innovation Funds (£54 million total) which will co-finance business incubation and small-scale infrastructure to help cluster development and, in particular, boost manufacturing. These changes are welcomed by the BCC.

  5.8  RDAs have been given responsibility for the Single Regeneration Budget (SRB). The BCC has had some concerns about this, as SRB is primarily a social regeneration fund and thus could distract from the business focus. However, SRB funding is being abolished altogether and future social regeneration programmes will be administered through Government Offices.

  5.9  The BCC particularly welcomed the recognition by Government of the need for venture capital funding to be administered at a regional level and therefore welcomed the development of the Government's Regional Venture Capital Funds (RCVFs). We remain hopeful, that the work of the Small Business Service in trying to get that initiative cleared by the European Commission will eventually succeed. There is a clear and well-recognised market failure, which the RVCFs are trying to address. The Commission's argument that the scheme would contravene state aid rules by distorting the market is difficult to understand, because there is no market for the size of funds to the types of businesses that this scheme is aimed at.

  5.10  However, there is a tension in the design of the scheme. Setting the limit for financing at £250,000 per company still leaves a huge gap between £250,000 and £1 million, which is where commercial venture capital funds now generally begin to get interested. It also serves to reduce the viability of the RVCFs, which is the main reason that the leading venture capital players have not taken part in bidding for the funds as had been hoped. The RVCF initiative is at risk of becoming a one-off initiative rather than catalysing a new market. A limit of £1 million per company (combined with a requirement for a certain proportion of the fund to be invested in smaller investments) would cover the full equity gap, make the funds themselves much more commercially viable, and demonstrate the viability of this marketplace if tackled in the right way. The drawback might be that it would give further ammunition to the European Commission to block the scheme.

External relationships

  5.11  There are real concerns about the relationship of RDAs and other bodies, particularly Small Business Service franchises and local Learning and Skills Councils. The BCC is keen that there is a streamlined approach and that there is coherence on issues such as skill needs identification, training programmes and business support services. It is imperative that both businesses and other organisations are clear about the roles of different bodies and that there is not duplication of research or difference in overall strategy.

  5.12  In addition, there is still an unclear relationship between RDAs and Government Offices. Government Offices need a more clearly defined role and should buy into and reflect RDAs' agendas. The BCC would prefer that RDAs are the clear lead regional agency.

previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 11 May 2001