Memorandum from the Federation of Small
Businesses (FSB)—East Midlands (EM 03)
SUMMARY OF
EVIDENCE
— emda's activities on the Information,
Diagnostic and Brokerage (IDB) Model and Business Support Simplification
Programme have been excellent, but its work on key clusters has
been questionable.
— The revised accountability arrangements
resulting from the Sub-National Review of Economic Development
and Regeneration (SNR) are inadequate, and a mechanism needs to
be put in place for businesses and stakeholders to continue to
question publicly funded bodies.
— Whilst the business community has played
a strong role in developing and delivering the Regional Economic
Strategy (RES), the engagement of sole traders and micro businesses
could be strengthened.
— Although significant data and intelligence
was produced to underpin the RES, emda has not annually
assessed how the data has changed, making it difficult to ascertain
the impact that the RES and its priority actions are having.
— The vast majority of FSB members have
reported continuously decreasing business confidence, decreased
turnover, increased overheads and tighter cashflow, for the last
15 months.
— emda's response to the economic
crisis has been positive, and the re-focus of business support
services on business survival has been welcomed.
— emda has been reliant on the data
provided by business representatives during the recession, and
needs to collect, analyse, and disseminate more timely and accurate
data.
— There should be a statutory responsibility
for local authorities to consult with businesses on the development
and delivery of the single Integrated Regional Strategy.
— emda's funding is largely focussed
on the three cities with insufficient investment in the region's
towns and surrounding areas to support rurally based businesses
and communities.
1. INTRODUCTION
TO THE
FEDERATION OF
SMALL BUSINESSES
1.1 The Federation of Small Businesses is
the UK's leading non-party political lobbying group for UK small
businesses. It exists to promote and protect the interests of
all who own or manage their own business. With over 215,000 members,
the FSB is the largest organisation representing small and medium
sized businesses in the UK. The FSB has approximately 16,000 members
within the East Midlands region.
2. ROLE, RESPONSIBILITIES
AND ACCOUNTABILITY
OF EMDA
2.1 emda's role in the region has
consisted of strategic economic development coupled with delivery,
and this has sometimes caused confusion. In the past emda
was regarded as a principal source of funding. Although they have
tried to change this perception, there is still some uncertainty
about its precise role and responsibilities. Clearly, the role
and functions of the Regional Development Agencies will change
as a result of the Sub-National Review of Economic Development
and Regeneration, with delivery being devolved to local authorities
and their partners. We feel that the implementation of SNR should
be used as an opportunity to clearly communicate the future role
and responsibilities of emda, local authorities, businesses
and stakeholders in regional and local economic development.
2.2 The FSB in the East Midlands welcomed
the introduction of a regional approach to business support through
the Information, Diagnostic and Brokerage Model. The FSB also
supported the Business Support Simplification Programme. We believe
that emda's work on business support has been excellent,
but we want an assurance that the extension of economic development
duties to local authorities will continue this ethos, rather than
lead to a re-proliferation of business support services at a sub-regional
and local level.
2.3 One area of emda's work on business
support which we believe has been questionable, is the focus on
key clusters and industrial sectors. In some cases, the clusters
have been "artificial" and have not matched supply chains.
We also feel that some important sectors to the East Midlands
economy, such as the logistics industry which surrounds much of
the M1 corridor in the region, have been excluded on the
basis of their limited rate of growth and perceived contribution
to the Gross Value Added (GVA) Rate.
2.4 The scrutiny powers afforded to the
Regional Assembly provided a significant opportunity for businesses
to question emda about its policies and activities. The
FSB sat on several scrutiny panels allowing us to feed-in the
experiences of small businesses, and influence change where it
was needed. We are concerned that the scrutiny role of businesses
will disappear with the demise of the Regional Assemblies. We
do not believe that the revised accountability arrangements arising
from the SNR are adequate. It is absolutely correct that all publicly
funded bodies should be accountable for spending money derived
from taxes. Whilst the Regional Select Committees will be able
to hold any public body in the region to account, they are not
a replacement for the in-depth regional scrutiny that has been
undertaken by panels of local politicians, businesses and other
partners. There needs to be another mechanism by which businesses
can question the policy and activities of any publicly funded
body in the region, to strengthen accountability.
3. PROCESS FOR
DEVELOPING THE
REGIONAL ECONOMIC
STRATEGY AND
STAKEHOLDER ENGAGEMENT
3.1 The FSB in the East Midlands has always
had a good relationship with emda, particularly with the
Business Services Directorate. emda has encouraged our
views and we have found them to be receptive to our comments about
small businesses. The FSB is part of the East Midlands Business
Forum and apart from lobbying emda as an individual organisation,
we have also worked collaboratively with the Chambers of Commerce
and the Institute of Directors, to assist the development of the
RES.
3.2 We believe that emda has always
been committed to the notion of being business-led. We especially
welcomed the opportunity presented to the private sector in chairing
the Sub-regional Strategic Partnership Boards in the region. Businesses
have occupied several seats on the Boards, and have helped steer
sub-regional economic development. Whilst the business community
has been able to play a strong role in the development and delivery
of the Regional Economic Strategy, we do feel that engagement
with businesses could be strengthened, particularly in regards
to entrepreneurs and micro businesses. In the past, emda
has often engaged with larger companies rather than small and
micro-sized firms, and although they have relied on input from
business representative organisations such as the FSB, it would
be preferable for them to seek more active consultation with small
businesses.
4. EFFECTIVENESS
OF THE
RES IN DELIVERING
TARGETS
4.1 In terms of performance against the
core output targets, emda has usually exceeded the targets
specified in the RES and Corporate Plan. Some targets have been
exceeded by a considerable margin. For example, emda confirmed
in its 2007-08 Annual Report that the target for businesses
engaged with the UK knowledge base had been exceeded by 34%. emda
also doubled its target for working adults gaining a full Level
2 qualification.
4.2 The continuous over-achievement of targets
could suggest that either the targets have been deliberately set
low in order for them to be easily attained, or that emda
has focussed its support on delivering activities that meet the
core output targets ("low-hanging fruit"), rather than
on activities which would tackle the region's most difficult issues
and deliver strategic added value.
4.3 In 2006, emda produced a comprehensive
and comprehensible RES based on detailed intelligence, and it
is easy to see how the strategic priorities and priority actions
in the RES were determined. It is disappointing that whilst significant
data and intelligence was produced to underpin the RES, there
has been no assessment since of how this data has changed year
on year. This means that the data and intelligence underpinning
the delivery of the RES is static and historic, whereas an annual
assessment of the data could have usefully shown statistical trends,
and the progress made towards sustainable economic growth. It
is therefore difficult to ascertain the impact that the RES and
its priority actions are having on the East Midlands rates of
Gross Domestic Product (GDP), business starts and innovation.
The achievement and promotion of the output targets achieved is
all well and good, but progress made towards a broad set of baseline
indicators would be more timely, meaningful and illustrative of
how emda's activities are having a positive economic, social
and environmental impact.
5. EFFECT OF
ECONOMIC RECESSION
ON EAST
MIDLANDS BUSINESSES
AND EMDAS
RESPONSE
5.1 FSB members in the East Midlands have
reported decreased business confidence each quarter over the last
15 months. In January 2008, we had a strong indication that the
economy was in serious decline when 42% of our members reported
a drop in business confidence. Six months later, this rate increased
to 58%, and it has remained constant. 33% of the respondents to
our quarterly survey in January 2009 rated the decline in
their confidence as "substantial" since October 2008.
The continuous decline in business confidence is coupled with
decreased turnover for the majority of small businesses over the
same period of time. In January 2009, 51% of our members reported
a drop in sales and turnover, of which a staggering 31% reported
significant falls of over 3%. Our most recent survey data for
April 2009 shows only a slight improvement, with 48% of our
members still reporting a decrease in trade.
5.2 The majority of small businesses have
experienced increases in their overheads and tighter cashflow
during the recession, and many have introduced cost-saving measures
to ease the pressure. Our data shows us that three times as many
businesses have reduced staffing numbers than have recruited,
increasing numbers of businesses have reduced staff training,
and the number of small businesses making capital investments
in their business is now at its lowest rate for several years.
The quarterly survey data also shows us that the majority of our
members have absorbed the increased costs and resisted passing
it on to their customers. Just 31% of small firms have increased
their prices, whilst 21% have cut their prices to sustain turnover
and to stimulate consumer demand.
5.3 Whilst the vast majority of FSB members
have struggled during the recession, a minority of our members
have fared reasonably well. In the East Midlands, a quarter of
small businesses reported an improvement in turnover in January
2009, whilst 16% of small businesses stated that their profitability
had improved. It is important to note that the minority of businesses
that are faring well, are those involved in highly specialised
manufacturing and knowledge industries. Although survey data for
April 2009 indicates that 21% of our members have experienced
an increase in trade in the last three months, in normal economic
conditions this rate would be substantially higher.
5.4 A primary concern for the FSB is the
difficulty that our members are experiencing in accessing new
finance and negotiating existing working capital facilities. This
issue has been exacerbated by higher costs of borrowing for around
a quarter of our members, despite the Bank of England's reductions
in the base rate. We are regularly canvassing our members about
their experiences in obtaining credit and financial support from
banks and other lenders, to track how quickly the issue is being
resolved, and the extent to which Government intervention is filtering
down to the customer. It has also been recently highlighted through
our membership, that insurance companies are restricting credit
insurance, causing difficulty for businesses buying stock on credit.
5.5 Another key concern for the FSB is public
sector procurement and how easily small firms can collaborate
and win public sector contracts. For those FSB members who have
been successful in winning public sector contracts, it is disappointing
that the majority of them have had to wait significantly longer
than ten days for payment. The quick payment of invoices is crucial
to small businesses, not only in times of economic recession but
also in periods of economic growth, to ease pressures on cashflow
and provide much-needed liquidity.
5.6 During the last 18 months we have
continually lobbied emda, the Government Office for the
East Midlands, MPs and the Regional Minister on the plight of
small businesses, and the action needed to support them through
the recession. To this end we are pleased with emda's positive
response to the economic crisis, and the range of measures they
have introduced to support businesses in the East Midlands, particularly
those aimed at micro-sized firms. Due to the lengthy and bureaucratic
processes that the RDAs operate on funding approval and decision-making,
they do not tend to act swiftly. We therefore applaud emda's
relatively quick response to the economic downturn. Clearly, the
RDAs have never before operated in a period of economic decline,
and the RES from each region has always been pre-occupied with
high-growth businesses. We have therefore welcomed emda's
re-focus of its business support services on business survival,
the series of "Survive and Thrive" events, and training
packages which advise company owners and managers on how to manage
their business through economic recession.
5.7 One particular tool which could have
helped emda however, is more timely and accurate data on
which to base decisions. emda's statistics are significantly
out of date, and decisions are being based on data that is at
best eighteen months old and at worst five years old. The FSB
gathers data from member organisations every few months, so the
data we use is current. During the recession we have found that
emda has been reliant on the data gathered by business
representative organisations. As a business-led body with a considerable
budget, the collection, analysis and dissemination of up-to-date
economic data should be better.
5.8 As a national organisation, we are aware
that each RDA is responding to the economic recession in different
ways, with their own initiatives and grant programmes. This means
that businesses across the English regions have had access to
different types and levels of support depending on where the business
is based and the RDA's funding flexibility, rather than a set
of grants and programmes that are universally available. This
has therefore created inequality of support.
5.9 It is not always apparent where the
RDAs are sharing and disseminating good ideas and good practice
within the RDA network. It would be particularly beneficial to
know about the outcome of RDA projects or initiatives trialled
in other regions which could be replicated in the East Midlands
to avoid any "re-invention of the wheel". Similarly,
it would also be good for emda to more widely promote the
impact that they have had in responding to the economic recession,
to provide more positive media coverage.
6. PROPOSALS
IN THE
LOCAL DEMOCRACY,
ECONOMIC DEVELOPMENT
AND CONSTRUCTION
BILL
6.1 The SNR stated that the RDA Boards would
continue to be business-led, and the FSB supported this view.
It is therefore disappointing that the Local Democracy, Economic
Development and Construction Bill has failed to re-affirm the
role of businesses and business representative organisations in
steering economic development.
6.2 We recognise the need for a wide spread
of skills on the emda Board but we feel that it is vital
that under the new proposals there is appropriate equilibrium
between the private sector and local authorities. We feel particularly
strongly that the business seats on the emda Board under
the new arrangements, should also include entrepreneurs and small
businesses. This would ensure that the Board is representative
of the 99.2% of small business that make-up the East Midlands.
6.3 Although the Bill "expects"
local authorities to undertake consultation, it will not be a
statutory duty and we believe that it should be. Similarly, the
single Integrated Regional Strategy will be developed, approved
and monitored jointly by emda and the local authorities.
The role of businesses and other stakeholders under the proposals
appears to be strictly limited, whereby only a select number of
stakeholders from the emda Board will be able to influence
the content and delivery activity of the strategy through the
Joint Board.
6.4 The SNR was about economic growth. As
businesses are the agents creating that growth, it should be mandatory
that they are actively involved in planning the delivery of economic
development. The role of businesses under the new arrangements
must be much more than a consultee, otherwise there is a strong
possibility that businesses will become disillusioned and disengage.
6.5 Whilst the establishment of area-based
Economic Prosperity Boards proposed in the Bill may be seen as
an avenue for business to influence local economic development,
they are likely to duplicate the work of other existing Board
structures, such as the thematic groups within the City Region
Development Partnerships. They are therefore not a solution to
the issue of insufficient stakeholder engagement. emda
should consider alternative formal mechanisms for engaging businesses
and other stakeholders in all stages of the single Integrated
Regional Strategy—planning, development, consultation, delivery
and monitoring. It is only through the active and ongoing engagement
of wider economic, social and environmental partners, that sustainable
economic growth will be realised.
7. DIFFERENCES
IN URBAN
AND RURAL
SUPPORT
7.1 The East Midlands is the third most
rural region in England, and the FSB has lobbied on a wide range
of issues affecting small businesses in rural areas. It is important
to recognise that our members who are based in rural areas are
not necessarily operating in traditional rural sectors such as
agriculture. Their need for support is often similar to that of
an urban based business. The cost of work premises is an issue
for all businesses, but whilst it is cheaper for businesses to
be based in less urban areas, the availability of suitable business
premises outside of the region's cities and principal towns is
severely limited. Connectivity to broadband services is also an
issue for businesses in rural areas, with differing levels of
speed depending on the distance between the business and the telephone
exchange.
7.2 Lincolnshire, Rutland and South Northamptonshire
often feel that they are on the periphery of public investment,
with emda's funding being largely focussed on the three
core cities of Derby, Nottingham and Leicester. The FSB is concerned
that there is insufficient investment in the East Midlands towns
and surrounding areas to support rurally based businesses and
communities.
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