Memorandum submitted by the Federation
of Small Businesses (South East) (SE 16)
SUMMARY OF
EVIDENCE
— Following the demise of SEERA, business
support organisations need to have another formal mechanism by
which they can question the policy and activities of public funded
bodies in the region to ensure accountability. — The FSB
calls on the Government to address the ongoing under investment
in the South East. SEEDA needs to be given operational budget
that allows them to fully support the small business sector. —
We welcome the engagement by SEEDA of the business community in
the provision of the new Business Link contract.
— SEEDA needs to clearly detail how the
shortfall in their budget will impact on the RES targets.
— FSB members in the South East have experienced
very difficult trading conditions over the last eight months with
the three main problems being decreased trade, access to finance
and late payment.
— The FSB strongly criticises the complete
lack of engagement on the new SNR arrangements with the representatives
of the Social, Environmental and Economic Partners who previously
worked side by side with councils on the assembly.
— SEEDA have demonstrated a positive attitude
to supporting businesses through this current crisis. We have
particularly welcomed the refocus of its business support services
on business survival
— The single regional strategy must not
lose the crucial focus on the task of promoting economic growth.
1. INTRODUCTION
TO THE
FEDERATION OF
SMALL BUSINESSES
1.1 The FSB exists to promote and protect
the interests of entrepreneurs and the self-employed. With over
217,000 members, the FSB is the largest organisation representing
small and medium sized businesses in the UK. The FSB has approximately
36,000 members with the South East region.
2. ROLE, RESPONSIBILITIES
AND ACCOUNTABILITY
OF SEEDA
2.1 The role of SEEDA needs to be restated
especially in relation to the proposed changes to the regional
policy framework under the Sub National Review Proposals (SNR).
The role and functions of the RDA will change as responsibility
for the delivery of economic development becomes devolved down
to the local level (ie local authorities and their partners).
The FSB feels that the SNR should be used as an opportunity to
clearly communicate the future role and responsibilities of SEEDA,
local authorities, business organisations and regional stakeholders
in terms of sub-regional and regional economic development.
2.2 With the demise of SEERA, business representative
organisations have lost a useful vehicle for the FSB to scrutinise
the activities of SEEDA. FSB membership of the SEERA Executive
Committee allowed us to engage SEEDA in detailed discussions on
their strategies. We do not believe that the revised accountability
arrangements put forward by the SNR are adequate. It is a necessity
(especially in the current climate) that all publicly funded bodies
should be held accountable for spending money that derives from
tax payers, and ultimately all taxes are paid from funds generated
from commercial activities and that Small and Medium Sized Enterprises
(SMEs) generate the majority of the Regional GDP. Whilst the Regional
Select Committee will be able to hold any public body in the region
to account, we feel it will not be adequate replacement for the
regular scrutiny of SEEDA afforded to the FSB through our membership
of the SEERA Executive Committee. We feel that there needs to
be another formal mechanism by which business can question the
policy and activities of any publicly funded body in the region
to ensure accountability.
3. PROCESS FOR
DEVELOPING THE
REGIONAL ECONOMIC
STRATEGY AND
STAKEHOLDER ENGAGEMENT
3.1 The current "living" RES concept
of refreshing the targets on an annual cycle is fully supported
by the FSB. Theoretically this approach should allow the strategy
to be more flexible to reflect changing economic circumstances.
3.2 The FSB and its members have made a significant
contribution in its review of the RES. The FSB time commitment
involved in contributing to the review of the RES by the FSB has
not be repaid by SEEDA in providing feedback on the outcomes of
our input. We would like to have much more direct feedback on
our input into any future reviews.
3.3 Previous SEEDA attempts to engage with
business stakeholders resulted in the creation of various committees
that failed to have a real business focus. The failure of Business
South East (set up by SEEDA to be the voice of business) was in
part due to the tight control that SEEDA exerted over the meetings
agendas. This lead to the decision by the business representative
organisations to form the South East Business Forum (SEBUS) independent
of SEEDA. To their credit SEEDA have fully supported SEBUS. Senior
representatives from SEEDA have always been present at SEBUS meetings
for open discussions on their activities.
3.4 The ongoing engagement between SEEDA
and SEBUS has lead to the invitation for business representatives
to take part in an interview panel for the final bidders for the
new Business Link contract (due to come into operation on 1st
April 2010). The FSB fully applauds SEEDA for taking steps to
open up the procurement process for the new Business Link contract.
3.5 The introduction by SEEDA of area directors
have helped to give their regional teams an enhanced profile.
The FSB has seen far greater interaction with most of the SEEDA
Area Teams over the last 12 months. This has helped to increase
understanding of the work carried out by SEEDA and allowed the
FSB to feedback how their actions are impacting on small businesses
in the regions.
4. EFFECTIVENESS
OF THE
RES IN DELIVERING
TARGETS
4.1 As the South East is the engine room
of the UK economy the FSB has always criticised the Governments
ongoing failure to provide sufficient funding within the region,
despite the South East being the largest net contributor to the
Exchequer. Once again SEEDAs budget for 2008/09 was the second
lowest budget allocated within the nine RDAs (only the East of
England was given a lower budget) and the lowest overall per head
of population.
4.2 The National Audit Office (NAO) Independent
Performance Appraisal of SEEDA commended them for their highly
impressive record of achievement on a small budget. The FSB echoes
this praise, but laments the Government's failure to give SEEDA
an operational budget that allows them to fully support the small
business sector.
4.3 In terms of performance against the
core output targets, SEEDA in its Annual Reports and Accounts
2007/08 confirmed that they had overachieved on nine out of ten
of these targets. Some of these targets have been exceeded by
a considerable margin. For example, SEEDA confirmed that on the
delivery of Higher Level Skills they were 69% over target, Knowledge
Base Collaborations 69% over target and Business Creation, 43%
over target.
4.4 However, the continuous over-achievements
of targets could suggest that either the targets had been deliberately
set low in order to be easily attainable, or that SEEDA has focussed
its support on delivering activities that meet the core output
targets ("low-hanging fruit"), rather than on the pursuit
of more challenging targets specifically designed to tackle the
region's most difficult issues and deliver strategic added value.
4.5 SEEDA could improve some aspects of
their SME engagement in particular in relation to encouraging
small firms to bid for public sector contracts, and in relation
to the 2012 Olympics. SEEDA seems to be lagging behind other RDAs
in respect of these areas.
4.6 Following the announcement in March
2009 of the £50 million budget shortfall for SEEDA which
will result in 90 jobs being lost they need to ensure that they
effectively communicates how this will impact on the delivery
of the RES across the region. This is particularly important as
SEEDA places such importance on partnership working to deliver
the RES priorities.
4.7 The budget shortfall within SEEDA is
already having an impact. The Employment and Skills Boards (ESB)
are the first casualty of this budget shortfall. The proposal
to withdraw 2009-10 funding for ESB managers will have a dramatic
impact on the skills provision across the region. SEEDAs plans
for supporting businesses to take advantage of an upturn in the
economy will have far less impact if they fail to focus on skills.
5. EFFECT OF
THE FINANCIAL
AND ECONOMIC
SITUATION ON
BUSINESSES IN
THE REGION
5.1 FSB members in the South East have experienced
very difficult trading conditions over the last eight months with
the three main problems being identified by business owners: decreased
trade, difficulty in accessing bank finance and late payment by
large companies.
5.2 Survey data from the FSB demonstrates a significant
drop in the turnover of small businesses over the last six months.
In December 2008, 63% reported a drop in trade, by February 09,
53% of small businesses registered falling orders. Our most recent
survey data for April 2009 shows only a very slight improvement
with 48% of our members still reporting a decrease in trade.
5.3 Whilst the vast majority of FSB members
have struggled during the recession, a minority of our members
have fared reasonably well. Even during the last quarter of 2008,
10% of small businesses had seen their trade increase. Our latest
data (April 2009) shows that 21% of business owners saw an increase
in their trade over the previous two months.
5.4 Given the Government's latest consultation
document "New Industry New Jobs" mentions "Industrial
Activism" there is an opportunity for SEEDA to take a leading
role in this and also demonstrate the importance of Micro Businesses
in the SE economy by setting up a dedicated Centre for Micro Business
Activism.
5.5 We believe that the Government is putting
too much pressure on SEEDA to demonstrate the "green"
shoots of recovery within the South East economy. We understand
that the Government wants to be able to identify signs of economic
recovery as early as possible, but businesses need SEEDA to remain
focused on giving support to businesses that enables them to survive
this current period. Preparing for recovery is crucial to the
long term picture, but at this present moment ensuring that SEEDA
do everything to ensure business survival must remain the overriding
priority.
5.6 A primary concern for the FSB remains
the increases in the costs to small businesses of existing finance
or of new credit, such as loans or overdrafts. FSB data (April)
still indicates that business owners are still seeing increases
in the cost of bank services with 27% registering an increase
in the cost of existing finance (up 2% on February) and the same
percentage registering an increase in the cost of new credit (up
3% on February).
5.7 In February the FSB produced a report
detailing business owners' experiences of trying to access the
Enterprise Finance Guarantee (EFG) Scheme. The majority of case
studies came back with negative experiences of business owners
when approaching banks to access EFG funds The latest evidence
indicates that some of these early" teething" troubles
are being addressed and more business owners are now getting access
to EFG funds. However, the level of personal guarantee being asked
to cover 25% not guaranteed by the government remains an issue
for business owners. Despite BERR guidance stating the "the
level of unsupported personal guarantee is at the lender's discretion"
the FSB is concerned that banks are asking for personal guarantees
from business owners to cover the whole of 25%.
5.8 Late payment by the public sector is
having a significant impact on small businesses cash flow with
21% of small businesses having to wait longer than 10 days for
the public sector to pay their invoices. The FSB has welcomed
the government pledge that Whitehall departments would pay creditors
within 10 days, and fully applaud SEEDA for quickly adopting this
target for payment times. However few of the councils in the South
East are following the lead set by government. Businesses need
to have greater certainty that local authorities will pay bills
promptly, to help reduce the pressure on their cash flow.
5.9 Late payment by large companies is a
more serious concern to the FSB. In February, 39% of small businesses
saw an increase in payment times from invoicing to full payment.
SEEDA needs to be seen to be taking the lead in promoting the
ethical treatment of suppliers by large companies. A key step
would be for SEEDA to encourage all large companies on the Corporate
Cabinet to deliver on their Corporate Social Responsibility (CSR)
commitments and agree to pay all their suppliers in 10 days.
5.10 The current economic climate has given
SEEDA their most significant test. Since its creation in 2000
the RDA has benefitted from the strong continued growth in the
South East economy. Clearly SEEDAs never envisaged having to deal
with a sustained period of economic decline and the majority of
the current RES targets have been rendered obsolete by circumstances
beyond SEEDAs control. Despite this SEEDA have demonstrated a
positive attitude to supporting businesses through this current
crisis. We have particularly welcomed the refocus of its business
support services on business survival, and in particular, the
launch of the free Business Link Health Check service which has
been accessed by over 8.500 businesses. We also recognise SEEDAs
key role in the creation of the South East Financial Services
Forum to bring together representatives of all the major banks
around one table to discuss how to support businesses.
5.11 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 South East to
avoid any `re-invention of the wheel'.
6. PROPOSALS
IN THE
LOCAL DEMOCRATIC,
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 failed to re-affirm the role
of businesses and business representative organisations in steering
economic development.
6.2 We recognise the need for the wide spread
of skills on the SEEDA Board but we feel that it is vital that
under the new proposals the board remains business led. We feel
particularly strongly that future appointments to the SEEDA Board
should include entrepreneurs and small business owners. This would
ensure that the Board is representative of the fact that 99% of
businesses in the South East are small businesses.
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 SEEDA and the local authorities. The
role of businesses and other stakeholders under the proposals
appears to be strictly limited, whereby only a small number of
stakeholders from the SEEDA Board will be able to influence the
content and delivery activity of the strategy via the new arrangements.
6.4 The SNR was about economic growth. As
businesses are the agents creating the 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 business and business organisations will become
disillusioned and will disengage.
6.5 The FSB strongly criticises the complete
lack of engagement on the new arrangements under the SNR with
the representatives of the Social, Environmental and Economic
Partners who for the past nine years had worked side by side with
local authority representatives on the Assembly.
6.6 The two seats offered to stakeholders
on the Strategy Board are done so with the clear proviso that
they are not part of the decision-making process. The real danger
is that the business community feeling disenfranchised under these
proposals will simply walk away from all participation in the
future arrangements.
6.7 We are concerned that the creation of
a single regional strategy will lead to a loss of focus on the
key task of promoting the economic prosperity of businesses in
the region. This concern has increased following the publication
of the South East Plan (May 2009) whose targets are completely
out of step with the current economic climate that businesses
have to deal with.
6.8 As part of the FSBs response to the
failure of the SNR to engage businesses in any of the new structures
we have created a small business engagement accord for local authorities
to sign-up too. The Accord features 14 recommendations to guide
local authorities to improving their consultation with their local
business community. SEEDA have been fully supportive of this FSB
campaign throughout its development.
7. BUSINESS LINK'S
ROLE IN
ASSISTING BUSINESSES
TO GAIN
ACCESS TO
FUNDING BOTH
FROM THE
GOVERNMENT FUNDING
STREAMS AND
THROUGH THE
BANKING SYSTEM
7.1 Recent figures demonstrate that in January
2009 enquiries to Business Link (BL) were 70% higher than in January
2008 as businesses sought advice on how to deal with the recession.
It is clear therefore that BL do have a key role to play in helping
businesses to access finance.
7.2 However despite this increase in the usage
of BL services, FSB data has shown that the usage of Government
Funded Business Support (only 27% of business owners used this
service in the last 12 months) by small businesses lags well behind
alternative sources of business advice such as other business
owners (68%), Internet (68%), Bank (64%) and Central Government
(30%). Any strategy for promoting access to loans via BL services
has to take into account that most small firms still do not access
BL services on a regular basis.
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