APPENDIX 2
Memorandum submitted by the British Chambers
of Commerce
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.
OUR RELATIONSHIP
WITH THE
SBS
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.
Advocacy
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.
THE TRANSITION
TO THE
NEW BUSINESS
LINK FRANCHISES
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.
THE TRANSITION
FROM TECS
TO LSCS
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.
REGIONAL ENTERPRISE
INITIATIVES AND
THE RDAS
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.
Funding
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.
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