House of Commons - Public Accounts

Select Committee on Public Accounts Eleventh Report

1 Assessing the impact of government support for small business, and reducing its complexity

1. Over 99% of all businesses in the United Kingdom are defined as small (with fewer than 50 employees) or medium-sized (with 50 to 249 employees) businesses,[2] they have a combined annual turnover of about £1039 billion, and they are found in all sectors of the economy. Given this diversity and scale, how well small businesses perform is affected by a wide range of factors, including the quality of government support. In 2000, the Department of Trade and Industry (DTI) established the Small Business Service (SBS) to work alongside the rest of government to make the United Kingdom the best place in the world to start and grow a business. The SBS pursued this aim by attempting to influence the rest of government and by delivering some services. On 26 October 2006, the Minister for Industry and the Regions announced that the SBS would be reformed to operate as a policy unit within the DTI's Enterprise and Business Group focusing on influencing the business environment and supporting entrepreneurs, but losing its 'next steps' executive agency status and its service-delivery role.

2. The SBS created a performance management framework (Figure 1) to pursue its vision for small business. The framework is comprised of three aims, three targets, and seven strategic themes.[3] The Government's three aims for small business were originally set out in the 2002 policy paper Small Business and Government—the Way Forward: "many more people, regardless of their background, having the desire, skills and opportunity to start a successful business"; "everyone with the ambition to grow their business being helped and supported"; and "a supportive business environment with all small businesses finding it easy to respond to government and access its services". The PSA objective for which the SBS has responsibility—"to build an enterprise society in which businesses of all sizes thrive and achieve their full potential"—contains three targets for achievement by 2008. These are: an "increase in the number of people considering going into business"; to "improve the overall productivity of small firms"; and "more enterprise in disadvantaged communities". The seven strategic themes are to:

"build an enterprise culture";
"encourage a more dynamic start-up market";
"build the capability for small business growth";
"improve access to finance for small businesses";
"encourage more enterprise in disadvantaged communities and under-represented groups";
"improve small businesses' experience of government services"; and
"develop better regulation and policy".

Figure 1: The Small Business Service's performance framework

Source: National Audit Office

3. However, the complexity of the performance management framework can make it difficult to assess the SBS's progress in supporting small businesses. For example, as there is no direct correlation between the strategic themes and government aims and targets, satisfying each of the strategic themes still may not be sufficient to meet all the government aims and targets. Furthermore, as many of the actions that would be needed to achieve the PSA objective for which the SBS is responsible are the responsibility of other parts of government, the performance of the SBS depends to a large degree on the performance of the rest of government.

4. The SBS has not been able to evaluate either its impact, or that of government overall, against government aims and objectives for the small business sector. In the evidence to the Committee, the SBS acknowledged that its cost-effectiveness was a key issue for the first time and stated that in 2004-05 it had generated a return of £2 for every £1 of programme expenditure and £8 for every £1 it spent on administration;[4] but these cost-effectiveness ratios emerged only at our hearing, had previously played no part in SBS plans, key targets or reporting, and had not yet been independently verified. Any independent assessment would have had to consider, for example, whether these analyses took adequate account of the impacts of the interventions by other government bodies to support small business, which represented the majority of programme expenditure.

5. The SBS is on course to meet two of the three PSA targets for the small business sector. There has been progress to improve the overall productivity of small firms, with the productivity of small and medium sized businesses growing at a faster rate than all firms' productivity between 1999-2000 and 2001-02, but falling behind again in 2002-03.[5] In line with the second PSA target, there are indications that more enterprise has been encouraged in disadvantaged communities, with the gap in VAT registrations between the most deprived and the least deprived areas of England falling by more than 5% between 2000 and 2003.[6] However, these indicators do not clarify whether the SBS has made progress on these two PSA targets because of its own or other government actions to support small business, or because of general factors such as the overall performance of the economy. The SBS has not made progress in meeting its third PSA target to increase the number of people thinking about going into business, with the proportion of working adults considering starting their own business falling from the 2001 baseline of 11.6% to 11.3% by 2003.[7] However, having set the original target on the basis of just one year's figures, the SBS decided that the target was unrealistic.[8] The SBS subsequently reduced the original target from 14% by 2006 to 12.3% by 2008.

6. A cross-cutting study performed as part of Spending Review 2002 showed that the Government spent about £2.5 billion a year on at least 294 services for small businesses. Similar research sponsored by SBS reported that in 2003-04, 15 central government Departments provided 265 programmes to support small businesses in England. A survey of three of the nine English regions identified over 800 further services being provided at a local level.[9]^. SBS admits this position is very complex, making it difficult for customers to access business support and inefficient and ineffective for government.[10] SBS stated that it had persuaded the Treasury to include in this year's budget plans a target for the reduction of business support programmes across England from nearly 3,000 programmes to fewer than 100 by 2010.[11] The SBS should co-ordinate government wide action to achieve this reduction target.

7. The Government Action Plan for Small Business was published in January 2004. The Plan builds on Small Business and Government—the Way Forward, identifies seven strategic themes, and consists of a range of 'actions' to be taken by government Departments to support small businesses. The SBS was charged with ensuring the implementation of the Action Plan. However, the SBS has not reported publicly on progress as originally intended, because it could not successfully manage changes in its information technology.[12] According to the SBS, the Action Plan launched 69 'actions' of which 46 are complete, 7 are still ongoing and 16 have been superseded by other programmes. But the Plan does not set out which bodies are accountable for these 'actions', many of the 'actions' are vague, and it is questionable whether progress against them can be measured reliably. The Action Plan also contained 21 'measures of success' and the SBS has indicated progress on 75% of them.[13] The SBS has not, however, indicated how small businesses themselves have benefited from the Action Plan.



© Parliamentary copyright 2007	Prepared 6 February 2007