Memorandum from the Federation of Small
Businesses (NW 05)
SUMMARY
— Trading levels continue to get worse
and at a faster rate.
— Invoice payment times are getting longer
and public sector not yet delivering on 10 days promise.
— Credit insurance costs increase as does
the cost of existing and new credit through banks.
— North West banks are turning down half
of all small business applicants for credit.
— Too few banks are making Enterprise Finance
Guarantee Funding available.
— Some sectors doing better than others—tourism,
repair & maintenance and those providing services previously
done "in house".
— Small businesses in supply chains for
defence and motor industries will be suffering.
— Construction has been badly hit but more,
smaller contractors trying the domestic market.
— Most vulnerable sector is the small,
independent high street retailer.
— Federation of Small Businesses (FSB)
enjoys a good relationship with Northwest Development Agency (NWDA)
& Business Link Northwest (BLNW) but there is room for improvement
and great benefits if fully exploited.
— Better use could have been made of NWDA
in managing the Enterprise Guarantee Funding.
— North West Joint Economic Commission
(NW JEC) in danger of being a talking shop, needs better public
sector/private sector balance and improved feedback from national.
— BLNW is improving all the time and is
open to new ideas but still poorly utilised, better marketing
would help.
— The Boards of both NWDA and BLNW are
missing the benefits of have representatives of business organisations
on them.
— Need to look at the composition and role
of 4NW; it is not valued by the independent private sector.
— Make taking on an apprentices easier
for small businesses.
— Small businesses disillusioned by government
promises of help that are too slow to roll out.
— The last budget was not very helpful
for small businesses, many excellent opportunities missed.
— Initiative such as Real Help Now and
the joint response on redundancies needs to be better marketed.
— Dangers in too much decision making at
local authority level resulting from Sub National Review of government.
Have they the capacity? And will they be inclusive in their consultations?
— VAT reduction cost small business more
than they gained.
1. INTRODUCTION
TO THE
FEDERATION OF
SMALL BUSINESSES
1.1 The Federation of Small Businesses (FSB)
has around 215,000 members nationally and is the UK's largest
business lobbying group—approximately 22,000 of those
members are in the North West. The FSB's principal aim is to protect
and promote the interests of its members and the small business
sector in general.
2. The effect of the economic situation on
the region; including the effect on different sectors and on different
sub-regions
2.1 According to FSB members in the region
the volume of trade has continued to decrease at a growing rate
over recent months. In February, 46% of members reported reductions
in trade levels. By April this had increased to 55%. Those experiencing
an increase in trade have slipped from 24% to only 18% over the
same period. (note i)
2.2 Adding to the difficult trading conditions
members are reporting a huge and unsustainable, from their perspective,
rise in the time it takes the private sector to pay invoices.
The most recent figures show nearly 38% of our members are now
waiting longer than they were in February for settlement.
2.3 There are very few signs that the 10 day
payment scheme for the public sector, promised by government,
is being adhered to with a massive 83% reporting longer payment
periods.
2.4 In the last six months over half of
those respondents applying for credit insurance have seen the
cost increase.
2.5 Increases in the cost of existing and
new finance have also increased by more than 50% and 72% respectively
over the last two months. Almost half of those who applied for
a loan or overdraft in the same period were refused.
2.6 A significant number (22%) of small
businesses remain unaware of the government's guaranteed finance
schemes. Less than 40% of those who are aware believe it will
encourage increased bank lending.
2.7 When asked about the Enterprise Finance
Guarantee, of those who were aware of their bank's position, only
one in four said their bank was making it available.
2.8 The rural economy is almost entirely
reliant of small businesses and their situation during this recession
is even more critical than ever. The decline of services in rural
areas, mainly banks and post offices, has had an undesirable knock
on effect on the rest of the community these served. The FSB proposes
setting up Post Banks similar to those operating successfully
in some other European countries. Based on the Post Office network
it is felt that the Post Bank system would provide the necessary
banking and investment opportunities to survival and perhaps revival
of rural areas. Details on the FSB's website at www.fsb.org.uk
2.9 Anecdotal evidence on the effects of
the recession on different sectors reveals that:
— Tourism, so far this year, is benefiting
from a weak £ in Europe and an uncertainty about continued
employment in some sectors.
— Businesses in repair and maintenance
sectors eg motor repair appear to be less seriously affected as
are those in businesses where services were provided "in
house" and are now contractors out to them.
— As projects in the defence sector are
put back the small business supply chains, particularly in Cumbria
and Lancashire, will themselves find trading difficult.
— Smaller companies in the motor industry
supply chain will suffer considerably unless they too benefit
directly from any government initiatives.
— Construction's problems are well documented
and businesses, large and small, in this sector are desperate
for a revival. Some smaller contractors have widened their markets
to include domestic repair and maintenance in order to stay in
business and retain experienced workers.
— The IT sector presents a mixed picture
as projects like Media City in Salford increase demand. This is
counterbalanced with a reduction by businesses in general to purchasing
new equipment—it's make do and mend for the time being.
— Most vulnerable are the independent retailers.
Even before the recession the continuing and unchecked growth
of larger, multinational retailers was causing many closures.
This has worsened considerably in the last year. Some estimates
suggest that, by 2015, there will be few, if any, traditional
family run shops left. It is also estimated that, for every job
created in a major retail outlet, three jobs will be lost due
to closures on the high street. The FSB is to conduct research
on this subject later this year.
— According to figures published by BDO
Stoy Hayward, there are around 120 small businesses closing
each day, many of these will be on the high street. Research by
Experian shows that four of Britain's worst hit high streets (by
percentage of empty shops) are in the North West:
— Rochdale—29% (the 3rd worst in
the whole country)
3. The effectiveness of Northwest Development
Agency in assisting businesses in the current economic downturn
3.1 The FSB's relationship with NWDA and
BLNW has improved significantly in recent years. Both independently
and as a member of the Private Sector Partners NW Ltd (note ii)
the FSB has opportunity to discuss issues with the NWDA's chief
executive, his senior managers as well as the managing director
of BLNW.
3.2 However, this does not mean the system
of communication is perfect and it is sometimes felt that communication
and agreement at senior levels does not always reach more practical
operational levels within the organisations.
3.3 There is a great and untapped capacity
within the private sector to support and advise not just the NWDA
but all other government agencies in the region. This opportunity
is weakest when agencies assume the private sector has the resources
to respond to lengthy and technically papers in anything but a
cursory manner.
3.4 In our opinion, BLNW has responded quickly
and effectively to meet the changing need of businesses. Their
move to put great emphasis and resources into supporting access
to finance has been welcomed.
3.5 The FSB feels it is too early to pass
judgement on the NWDA's effectiveness in the current economic
situation. However, it is our belief that they should have been
allowed a more prominent role in managing the allocation of Enterprise
Guarantee Funding. Their understanding of the region and where
the funding would do the most good is better than the banks who
are inclined to consider their own commercial position before
that of businesses they might loan to.
4. The response of the Joint Economic Commission
4.1 The intentions of the NW JEC are good
and worthwhile. However, bringing together, as it does, representatives
from a wide cross section of sectors and interests in the region,
the JEC is in danger of attempting to solve all ills and not achieving
anything substantial. The FSB has attended four of the five JEC
meetings and is concerned that it has gathered a tremendous amount
of information and appears to have done little with it.
4.2 There appears to be a disproportionate
amount of focus on the public sector. The JEC would benefit from
a more balanced membership between the private sector and the
public sector.
4.3 The meetings themselves would benefit
from more feedback on what issues are discussed and resolved at
the national meeting of regional ministers.
5. The capacity of the Government Office for
the North West, Government agencies such as Business Link, Learning
and Skills Council, and Jobcentre Plus, and other partnerships
to respond effectively to the economic downturn
5.1 There is strong evidence that the changes,
two years ago, to Business Link Northwest have been welcomed by
small businesses. The information, diagnosis and brokerage model
is seen, by the FSB, as the most effective means of supporting
small businesses.
5.2 A joint FSB/CBI/BLNW survey in late
2008 showed improvements in accessibility, service levels,
quality of support and relevance of support. Despite this BLNW's
services are only used by 15% of those seeking advice and support.
Accountants at 50% are the most likely first port of call for
business advice and BLNW should put greater emphasis on using
them as an access point. Marketing of their services is still
weak.
5.3 BLNW have shown willingness to accept
criticism and do everything they can to address fundamental problems
with their services. This was clearly shown when, following an
FSB report criticising advisor/broker abilities, they worked with
the FSB on a scheme that partnered brokers with small business
owners in order for them to better understand their "customer".
The programme was considered a great success by both parties.
Consideration is being given to extending this programme into
Train To Gain.
5.4 The Board of BLNW has recently been
selected and the FSB was disappointed that its representative
was not successful in being selected. Whilst appreciating that
there are recommended criteria for such positions we believe that
the exclusion of representative body, such as the FSB, simply
because it is a business organisation, is a fundamental error.
Without commenting on the abilities of those chosen it needs to
be recognised that, as individual business people, they are less
likely to bring the same depth and scope of information on business
needs to the table than those from business organisations. The
FSB have recommended to BLNW that they set up an advisory group,
from the region's business associations and professional bodies,
to sit in a formal advisory capacity to the main board.
5.5 The same principle applies to the selection
and make-up of the NWDA's Board. It is a missed opportunity to
be better informed on what is happening in the private sector
when representative organisations are excluded. The recent job
description and person specification for new NWDA Board members
are pitched at a level that would almost certainly exclude almost
all business people running small companies. Given that around
98% of all businesses in the North West are small this means that
it is highly unlikely for this majority in the business community
to have adequate representation.
5.6 The majority of the private sector representative
bodies, including the FSB, were disappointed by the way the Regional
Leaders Forum, 4NW, was appointed without proper consultation
or negotiation. 4NW was formed from the executive committee of
the North West Regional Assembly (NWRA), a body that was not supported
by the independent private sector in the region. In the eyes of
the FSB, the NWRA proved to be an ineffective and counterproductive.
We believe that accepting the executive as the regional leaders
forum is a mistake. The inclusion of a small number of non politicians
in the hope of convincing an outside world that it is inclusive
only adds to its lack of appeal. If there is to be a leaders forum
then it needs to comprise equal partners with a balance between
the political and the non political.
6. The usefulness of government initiatives
such as Real Help Now, in providing support and enabling access
to finance, for businesses in the North West
6.1 Small businesses were initially encouraged
by government announcements regarding access to finance but have
become disillusioned by the delay in getting these programmes
into place.
6.2 There is no real evidence to show whether
Real Help Now has been useful other than one comment that a business
had seen it and thought it might help. It is generally felt that
it needs better marketing and promoting.
6.3 The government missed several opportunities
in the last budget announcement to support small companies. These
are detailed in the FSB's Budget Submission document at www.fsb.org.uk
but principal amongst these missed opportunities were: the granting
of automatic rate relief, creating a corporate mediator and the
reduction and simplification of the taxation burden.
6.4 The government's decision to reduce
VAT may have looked good, but, in reality, it appears to have
had very little positive impact on trade volumes. In fact, many
small businesses saw an increase in their costs as they coped
with this change.
6.5 The FSB were dismayed by the recent
Funding Roadshow, hosted by Ian Pearson MP, which appeared to
be an attempt to disprove what small businesses are actually experiencing
regard difficulties accessing finance. This feeling was exacerbated
by the fact that it was largely delivered by a senior representative
from a partially government owned bank who was trying to convince
a better informed private sector that it was lending to the small
business sector. This event also had the purpose of asking business
representative organisations to carry out marketing of government
initiatives on their behalf. PR events of this nature should be
reconsidered by government.
6.6 The initiative between Jobcentre Plus,
LSC, NWDA, BLNW and ACAS to work together in response to redundancies
is welcomed. The FSB is worried that small businesses are in danger
of slipping through the net and missing out on this opportunity
as they would not normally have to report less than 20 redundancies.
We urge all the participating agencies to give this initiative
the widest possible circulation so that small businesses can also
benefit.
6.7 The new apprenticeship scheme is in
danger of becoming every bit as complicated for employers as previous
schemes. Small companies in particular will be less inclined to
take on trainees at any level if it involved too much red tape.
7. Whether the approach of regional government
and its agencies during the current economic situation strike
the right balance between short term need and planning for the
future
7.1 The provisions, within the Sub National
Review of Government, to allocate more decision making at local
authority level sounds good in theory. In practice this could
lead to a confusion of local schemes and initiatives that will
make management of the regional economy very difficult. It also
relies heavily on local authorities having or being able to obtain
the capacity to take on these new roles. The FSB is concerned
that, in many North West local authorities, this capacity does
not exist and it would be costly to introduce it.
7.2 Scrutiny of the single regional strategy
at this local level also makes it far more difficult for regional
partners, like the FSB, to participate in effectively because
of the number of meetings likely to come out of this. The FSB
is concerned this will give an inconsistent approach, using only
those partners able, willing or allowed to take part in decision
making.
7.3 This could well lead to the type of
situation that occurred last year in Greater Manchester when the
Association of Greater Manchester Authorities (AGMA) attempted
to force through their Transport Innovation Fund bid without proper
consultation with the independent business sectors. Using only
selected advisors chosen by themselves and the Manchester Chambers
of Commerce, and all known to be pro the congestion charge, they
approved a scheme that was, in our opinion, neither cost effective
nor fit for purpose. The result of this was a massive defeat in
a referendum with 80% of the voters rejecting congestion charging.
It is hoped that the lessons learnt by this very costly and embarrassing
episode will not be repeated and a more inclusive consultation
process will be used in future.
NOTES
i The figures quoted in paragraphs 2.1 to
2.7 are taken from polls of FSB members conducted in February
and April 2009.
ii Private Sector Partners NW Ltd brings together
around 25 of the regions' business associations and professional
bodies and combined membership has approximately 120,000 North
West businesses.
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