EXAMINATION
OF WITNESSES
(QUESTIONS 480-494)
FSB
4 NOVEMBER 2008
Q480 MR
BINLEY: Finally, I need to ask
whether the Government should develop a national economic strategy.
There has been a lot of talk about this. I am very dubious and
very concerned about it, quite frankly, but I wondered what your
views were.
MR
CAVE: I am not
sure that the FSB has a policy per se on that. What I would
say is that national economic strategies do not favour small businesses
and entrepreneurs. It is much easier for government and government
departments to engage with big business, and that will always
be the way. It brings us back to procurement, I think. When it
comes to looking at the Government directing money, directing
possible contracts, we would welcome that. However, you first
of all have to solve the fairly simple problems of getting procurement
opened up to small businesses.
Q481 MR
BINLEY: Are government and other
bodies aware enough of the fact that, for instance, Airbus in
the UK employs 13,000 people directly and has 400 companies in
its supply chain employing another 140,000 people? Is that properly
understood? If it were, would it not be better that you would
have been sitting here with a CBI representative, dealing with
this issue together?
MR
CAVE: I would
agree that I do not think it is widely recognised that there are
huge numbers. If you start losing small businesses, you will end
up losing big business, because it is the small businesses that
feed that supply chain. We have seen that in the past. There is
a long track record of that with the motor industry. There is
a risk that if we do not act now, that will happen again and it
will certainly deplete the manufacturing sector—deplete
the supply chain that we depend on.
Q482 CHAIRMAN:
Perhaps I could pursue the question of a national economic strategy
in a little more detail. We have had quite compelling evidence
from NESTA—and organisation held in high regard—about
the success of the Finnish experience. The parties agreed what
the most promising sectors were and then tried to develop policies
to encourage those sectors to flourish. It was not a strategy
in the George Brown sense but a different kind of strategy, where
the shortcomings of public policy that were inhibiting those growth
sectors were identified and addressed. Is there scope for doing
something like that in the UK or, again, is it something from
which the small business sector would not gain anyhow?
MR
CAVE: I think
that there is scope for it and I would not say that that was not
the case. Certainly, looking at the Finnish model—and we
work with NESTA as well—there is a good argument for identifying
sectors of the economy that may benefit from that. However, so
many of our members, and so many of the most successful small
businesses that grow into big businesses, grow out of finding
something that no one else has found. They look for those opportunities
that government would not necessarily recognise. I would not want
to put too much emphasis on a strategy solving all of our problems,
therefore.
Q483 MR
HOYLE: There is just one point
I want to clear up. If you do have a major hospital scheme, you
do not benefit at the end locally; you benefit from the beginning.
We all know that major companies use subcontractors locally. The
builders' merchant is local; the concrete supplied comes locally;
everybody's supplies are local. There are major benefits in bringing
those schemes forward, therefore, and that is where I do disagree.
The benefits are not at the end; the benefits are from the beginning,
right through the building project.
MR
CAVE: Strictly
speaking, that is not a public sector contract, because the small
business is contracted to a private company. Where we started
with this was in payment terms, and you come back to that.
Q484 MR
HOYLE: In fairness, if you have
a £60 million hospital scheme, I do not think that Mr Smith,
the local builder, will be tendering for it. The reality is that
there are very few companies in the country who can tender for
it. What we do know is that the benefit is through the subcontracting,
and the fact that procurement takes place locally is the benefit
that comes from those contracts. There are only a very companies
in the country that can tender for the work, but there are so
many benefits from day one with those contracts.
MR
CAVE: But the
problem is that it is not day one, because you have to wait for
it to get through that food chain. What we could do and what we
are encouraging—
MR HOYLE:
I had better spell it out. I will say it slowly, Mr Cave, because—
CHAIRMAN: He
has got the message. Give the witness a chance to answer the question.
Q485 MR
HOYLE: I will, but it is possibly
me that is not getting it across right. If the contract starts
from day one, the groundwork has come on to lift up the turf or
whatever, local machinery, local plant hire firms, are in there
from day one, because they are supplying the company. There are
immediate benefits at the moment that contract starts. That is
what I am trying to say—and it works its way through the
project.
MR
CAVE: Can I
come back on that? Not to disagree with it in any way, but what
we would like to see is these large contracts split up a bit more.
It would bring it forward even faster. If we were able to encourage
public procurement contracts to be split up at local level, that
would bring forward what you are saying even faster.
Q486 MR
HOYLE: What I am saying is that
there are benefits; all I want to do is build on that, because
I believe that the Government has to get some money into the local
economies, to industry, and mainly construction companies who
have taken the biggest hit so far in the downturn in the economy.
Can we move on to something that you recognise as being important,
innovation, can we just focus on that? How can the Government
extend its support for innovations in the service industry and
beyond the science and technology R&D?
MR
CAVE: I do not
think that the FSB has a huge amount to contribute in this area
at the moment. I would say "at the moment" because the
service sector is dominated by small businesses. It is overlooked
in terms of innovation, and I think it is an important area that
we need to build on. I would refer you back to what I said earlier
about the way it works in the United States, where they focus
on low-level innovation rather than sharp-focus R&D when they
are directing money; but, beyond that, I would not be able to
comment at the moment.
MR HOYLE:
Let us see if we can help in a different way. It is not easy because
it is not a specialist area for you. Maybe we should pass over
this.
CHAIRMAN: I
think the cluster point is worth asking.
MR HOYLE:
What we know from the experience of America is that, where clusters
have been encouraged and developed, there is shared knowledge
of innovation. Do you think the Government could do more to support
that, to help those people who wish to be involved in clusters?
Q487 CHAIRMAN:
The reason I say it is important is because we went to Cambridge
as a Committee and saw the Cambridge cluster, which is a very
unusual cluster. It is largely small businesses in that cluster.
Is that a model that can be replicated elsewhere, or is it just
a product of the unique chemistry of the Cambridge area or something
to be gained from more generally?
MR
CAVE: It is
clearly something that should be explored more generally. I do
not know enough about clusters to see how they work; to say whether
it is something you could replicate from Cambridge to somewhere
else around the country. What I would say is that over 60% of
patented innovations come from the small business sector; so it
is clearly not an area that can be overlooked.
Q488 MISS
KIRKBRIDE: We were hearing earlier
from the TUC about skills, saying that small business do not do
enough and, from the CBI, who say that that is because they do
it differently and it does not get measured. For the record, what
is your take on it?
MR
CAVE: I would
agree that the way in which skills are measured precludes so much
of the training that goes on in small businesses. A recent survey
suggests that 76% of small businesses are engaged in training,
but so much of it is informally; it is in-house.
Q489 MISS
KIRKBRIDE: Is there anything that
you would like to see happen from the small business point of
view, in terms of government support? Do it differently or do
it more? What should happen on the skills front?
MR
CAVE: More,
yes. Differently, definitely. The point that was raised earlier
about local FE colleges supplying courses that are not necessarily
tailored to what our members need—it does need to be demand-led.
Simple things like the timing of a course, the length, the duration
of it, the extent to which how much of it is away from the workplace.
If you employ only three people, taking that person out one day
a week will have a huge detrimental effect on your business; so
that has to be looked at. The other thing that we should consider
is moving towards accrediting informal training that is going
on in businesses at the moment. It is a way of formalising it
and getting businesses to understand—
Q490 MISS
KIRKBRIDE: How would it work?
How do you measure it?
MR
CAVE: It can
be done and could possibly be done in partnership with FE colleges.
It is a way of introducing the fact to many of our members and
many business owners that they are actually engaged in training.
It pulls them through to the next level, so that they get to recognise
that.
Q491 MISS
KIRKBRIDE: What about the enterprise
culture, bearing in mind that you are the embodiment of it? Everyone
has to start somewhere, and usually small. What should we do to
encourage, promote or improve our enterprise culture in the UK?
MR
CAVE: I will
probably not answer the question in the way you would like, because
before we can encourage an enterprise culture we first of all
have to get the basics right. When you talk to our members about
skills, the problems they have are the basic skills: employability
skills, basic reading and writing. Increasingly, it is beholden
on them to introduce these skills to new employees. We are almost
putting the cart before the horse. If we want to start talking
about an enterprise society, but are having more and more people
coming into the workplace who do not have a simple work ethic,
let us get the basics right for many small businesses before we
start looking further.
Q492 MISS
KIRKBRIDE: What reasons do your
members give for those poor skills? We hear that schools are getting
more and more young people through their qualifications. They
go up every year; more get triple-starred As, or whatever they
are. Why does the experience you relate here seem to differ from
what we read in our newspapers?
MR
CAVE: There
are two sides to it. There is a disconnect between the business
world and the academic world—or, not academic world, just
education. It is a great concern to our members that people are
finishing school and they may have acquired GCSEs and the appropriate
qualifications, but they do not necessarily know about timekeeping;
they are not necessarily able to step straight into the work environment.
As an organisation, we are encouraging more and more of our members
to become school governors, so that we can get that kind of interaction
with schools at an earlier stage. We are very keen on Enterprise
Week and getting that linked much more closely, so that work experience
is taking place more often. The apprenticeship scheme is also
crucial to this, because it gives people the opportunity to experience
the workplace before they go into it full-time. That is therefore
the overwhelming experience of many of our members.
Q493 MR
HOYLE: Just to follow up on that,
I think that you are absolutely right. Small businesses are the
backbone of the country; they are the future. When they do take
apprentices, what I have heard is that, first, they have to allow
them to take a day off for day release and to go to college; then
the problem is that colleges are now charging small businesses.
Fees are being put on to modern apprenticeships, and that is holding
people back from taking on apprentices and not doing formal, measured
training. I think that we are beginning to roll back on where
we have actually made advances in the past. Secondly, how much
more do you think we can do to ensure that we get more workplace
degrees, rather than people having to go out to do degrees at
universities?
MR
CAVE: To be
perfectly honest with you, the issue of workplace degrees for
the vast majority of FSB members is probably not that relevant.
You are looking much more at the large and medium-sized businesses
for that. In terms of your first point, I completely agree. The
FSB is in close agreement with the TUC, not only on the importance
of apprenticeships but how we support them and how we simplify
that. It is disappointing how many people start into the apprenticeship
scheme and do not finish it. That is clearly a personal failure
for the person involved who takes on the apprenticeship but it
is also a waste for the business. Because so many of our members
operate with such small, close-knit teams, it has a wider effect
on the team as well. We therefore have to make sure we facilitate
the completion of apprenticeships.
Q494 CHAIRMAN:
I have one last question for you, Mr Cave. I will set it in context,
though, before I ask it. What we were hoping to do originally
today when we talked to business and the unions was to talk about
the long-term changes in public policy to ensure that small, medium
and large-sized businesses can innovate and flourish and stay
ahead of international competition. Of course, we have been overtaken
a bit by the more short-term events of recent weeks and months,
which have shaped all the questioning. I hear what you say in
that context, in that longer context, about the crucial role of
small businesses play in ensuring that that innovation happens,
because entrepreneurs spot opportunities, gaps in the market,
that less fleet of foot, bigger businesses miss. Clearly, one
answer to that question therefore is that encouraging a climate
which supports small business generally—so public procurement,
training, apprenticeships—helps innovation in the UK. Is
there anything more we can do, particularly in terms of university
links? We have heard evidence earlier today that it is more difficult
for small businesses to engage with universities, to take advantage
of the knowledge that resides there, particularly the more technical
universities, perhaps to help them to take on their business to
the next stage, develop their idea beyond the level they themselves
have the capability and the skills to do. Do you think that there
is more that can be done to engage small business with universities?
MR
CAVE: Yes, there
is. As an organisation, we are going down that path by ourselves
engaging with universities to encourage this. This will probably
not be what you would consider to be a satisfactory answer, but
what we first of all need to do is instil in many entrepreneurs
that they can do that and they can move forward. Because if all
you do is focus on the link between a very small number of entrepreneurs
who should be developing contacts with universities, you will
not be massively boosting innovation in this country. Rather,
what we would like to see is a focus on those businesses and entrepreneurs
who do not necessarily make the connection at the moment between
innovation and what they do, and to bring that through. It is
certainly what has happened in the United States. It may take
longer but you will drag more businesses up that innovation stairway
and have a much wider innovation community as a consequence.
CHAIRMAN: That
is a really helpful note on which to end. I am most grateful for
the time and trouble you have taken in coming. May I say in public,
although I have said it on a number of occasions privately, that
it is good at last that small businesses have a coherent voice
in the UK? I think that the FSB has established itself as a coherent
voice for small businesses, which we would obviously like, and
I think you have proved that today. Thank you very much indeed.
| 
