Memorandum from the Federation of Small
Businesses (FSB)—South West (SW 06)
BACKGROUND
With 215,000 members, the Federation of Small
Businesses is the UK's largest campaigning pressure group promoting
and protecting the interests of the self-employed and owners of
small firms. It lobbies at many levels of Government, including
local, regional, national and European.
Representations have been made elsewhere to Government
about the exacerbation of the current problems by the introduction
of changes such as those to maternity and paternity leave and
to holiday entitlement, the failure to make small business rate
relief automatic and the increase in fuel duty. Any change which
increases costs or distracts small business owners from their
core activity increases the risks to their business. Full details
of the FSB's policies can be found at www.fsb.org.uk
The responses below relate specifically to the South
West of England.
Describe the impact of the economic situation
on the south west, including problems around unemployment and
debt
1. The impact of the recession on the South
West has been mixed. Worst hit sectors have been, as might be
expected, construction, retail and the local year-round elements
of the leisure industry such as pubs, restaurants, dance schools,
gyms etc. But even in these sectors there are examples of small
businesses doing well.
2. On the plus side, holiday accommodation, both
self catering and hotel is looking good. We just need the weather.
3. One concern is the impression visitors
will get. The retail offer is an important part of the holiday
experience. 2008 was a bad year and we know a number of retailers
were left with significant volumes of stock. Simple lack of space
as well as lack of cash means that they will be going into 2009
with much the same stock as 2008. It is to be hoped that it will
not look tired.
4. The FSB latest survey has 41% SW members
saying business had gone down over the last two months, with 28%
saying it had gone up, with 31% saying it stayed the same. Equivalent
UK figures are 46%, 23% and 31%.
5. The major impact on the SW has been through
finance—or rather the lack of it. Good businesses with reasonable
order books have closed just through a lack of finance. We have
case studies about overdrafts being withdrawn or cut, about factoring
being withdrawn forcing the closure of businesses, about six figure
Government contracts being lost through loan refusals. In one
case a small overdraft was refused to a business of 30 years standing
with the same bank. Asked for a reason the bank said "they
(the bank) did not know the business"!
6. The latest FSB survey shows that over
the last two months, 22% of SW small firms were granted the finance
they need with 17% being refused. This compares with 22% granted
and 22% refused for the UK as a whole.
7. Finance is a key issue because many larger
firms are delaying payment. The consequence of delayed payment
is that a firm needs a greater level of finance to continue to
operate at the same level of business. In one case the major customer
of one small firm unilaterally changed its payment terms from
30 days to 90 days. The firm had to close as its factors refused
to support the increased level of finance required.
8. Another group badly hit by loss of finance
is the businesses that are doing well. It is not generally appreciated
but lack of capital is the biggest reason for firms ceasing to
trade. It is when a business is expanding that the supply of finance
is key. That is why more firms go under when the economy is expanding
out of a recession than on going into it. Ironically, the very
firms now hitting this problem are frequently those the Government
wants to encourage such as the providers and fitters of "green"
energy equipment.
9. The third area where finance difficulty
hits businesses is when they want to refresh or remarket their
business. For example a retailer might have a new shop front.
Without finance, this is no longer possible.
10. The SW has many 2nd or 3rd tier suppliers
to major manufacturers. Because of their size, they may not make
the headlines, but they are still having to lay people off.
11. The stats for the SW will understate
our problems compared with the rest of the UK. According to the
Small Business Service stats, some 20% of people working in the
private sector in the SW have self employed status. This means
they are not eligible for Job Seekers Allowance or in many cases
for Train to Gain support for upskilling or retraining.
Government's response to the current economic
situation in the south west and its effectiveness in reducing
the impact of the recession
12. The FSB in the SW welcomes prompt payment
by the public sector.
13. However, the new unitary council for Cornwall
has gone back on the 10 day commitment and will be paying in 30
days. Failure even to achieve 30 days over the Xmas period put
at least one business at risk of closure.
14. We have reports from some Councils who
brought in the 10 day rule, that it is making them more efficient
and so saving money for the Council tax payer.
15. It is a great pity the public sector
cannot make the large companies who also benefit follow suit.
It is an even greater pity that the Government has not agreed
to use the Companies Act to enforce prompt payment.
16. The FSB in the SW welcomes the work
of HMRC's Business Support line in permitting businesses to spread
their tax payments. Members using this facility have been 100%
positive in the way their calls for assistance have been treated.
17. The only negative has been feedback
from a few members who were unable to get through on the Business
Support line—mainly over the Xmas period. Despite putting
a note with their return to that effect, they are still being
hit with late payment penalties. Small business owners are time
poor, especially at the moment. So they are more than ever likely
to use times when others are taking breaks, to catch up with administration.
The quiet period between Xmas and the New Year is a very good
example. Account needs to be taken of this in future.
18. However, members calling their local
tax office have not received the same support and in many cases
were not referred on to the Business Support line. It is a great
pity that such an excellent initiative has been marred by an obvious
lack of communication/briefing. There are indications that businesses
who would have had help from the business support line and were
not referred on, are now incurring penalties as a result.
19. Members who were able to spread VAT
payments and are now returning to ask for more help are being
told that they only get one opportunity for such support. This
should have been made clear at the outset. In any case, VAT is
paid quarterly and moving to a monthly basis should not be such
an issue.
20. The FSB welcomes the opportunity for
businesses to spread this year's increase in business rates over
the next three years. Given the problems in obtaining finance,
to have left things as they were, would have forced more businesses
to cease.
21. The impact of the Government finance
initiatives on the majority of small businesses seems, to date,
to be minimal. In the latest FSB Survey, almost 12% of those responding
had applied for the Enterprise Finance Guarantee and just 1.28%
were offered it. This is almost identical to the figures for England.
22. The supply of finance seems to be more
likely to be improved by the process of "Quantitative Easing"
increasing the overall supply of funds available to lend.
23. We welcome the temporary increase in
the threshold at which an empty property becomes liable for business
rates. March 2010 is probably too early to end this temporary
change.
24. In the SW, firms employing[2]
more than 250 employ just 29% of the private sector workforce,
compared with the 41% working in firms employing less than 10.
Thus the extra money and the National Employment Partnership aimed
at tackling unemployment through large employers will have a much
smaller effect in the SW than the rest of the UK. The support
for small redundancies is much more important for us, though we
have yet to see any evidence of it.
25. To boost employment, members suggest
a 12 month exemption from employers NI payments for staff additional
to the number employed for the previous 12 months. They take the
view that a proportion of small businesses would be more likely
then to employ someone. Giving the exemption in this way would
encourage the employment of additional staff and avoid the possibility
of "churn".
26. Despite the recent revision of employment
laws, their whole approach is still very much for the large organisation
with significant trade union membership. As stated earlier, such
employees are very much in the minority in the SW. Employment
law continues to be a significant barrier to employing more staff.
27. While the temporary fiscal stimulus
announced in the PBR is welcomed, its route is not. Programmes
like "Warm Front" are delivered by a very few national
organisations and frequently at a cost higher than would be payable
to small local firms. Their servicing "tail" effectively
breaks the link between consumer and local contractor, putting
small firms out of business courtesy of the tax payer. This topic
has been extensively covered by broadcasts such as "You and
Yours". The FSB would welcome alternative methods of delivery
of such programmes.
The effectiveness of the Government Office for
the South West, the Southwest Regional Development Agency, the
South West Regional Economic Task Group, and other Government
agencies and partner organisations in the South West in delivering
the Government's response
28. As I normally represent the FSB on the
SW Regional Economic Task Group, it is hard for me to comment
on its effectiveness. However, Ben Bradshaw has been an excellent
Chairman, keeping the group focussed and on track. Members have
been very impressed with his feedback to the Regional Economic
Group (March meeting) welcoming his full support on the SW situation.
29. The FSB in the SW has always found GoSW effective
and supportive. Regarding the economic situation, our awareness
of their role is the organisation of SWRETG meetings, providing
supporting papers, the notes and, with the SWRDA, following up
on the action points that come out of the meetings. The FSB welcomes
and appreciates their input.
30. It is worth noting that to avoid duplication
all information from partner organisations is being channelled
through the SW RDA's Chief Economist.
31. The FSB welcomes the creation by the
SWRDA of a special £10 million loan fund to supplement that
available through Government sources.
32. However, the SW FSB is very concerned
at the way the South West RDA funds are being raided to support
National programmes. Only the South East of England gets less
funding than the South West RDA and this has been an issue for
many years. From conversation with FSB colleagues, it is clear
that RDAs elsewhere are able to be much more active as they get
higher levels of funding. Business in the South West is severely
hampered by market failure on things like Broadband speed outside
of Cornwall. While RDAs elsewhere have the funds to take action,
the South West does not.
The impact that the response to the current economic
situation might have in the longer term on the economy and wellbeing
of the region
33. SW employment is overwhelmingly with
small and micro businesses. 41% working in businesses employing
less than 10 compared with 29% working in firms employing 250
or more.
34. While we very much welcome the Government's
efforts to counter the effects of the recession and prevent it
becoming something worse, too many of the initiatives have been
focused on larger firms and organisations. As a result the SW,
purely because of our economic structure, misses out and will
suffer recession effects longer.
35. It is likely that South West RDA's cuts,
to reflect the change in its funding, will be based on what can
be cut rather than following the various SW Strategies. We can
only surmise at present as South West RDA is unable to make an
announcement on their budget position until 8th June, following
the local and European Elections. If our assumptions are right,
projects aimed at lowering carbon footprint and moving us towards
a more knowledge based economy will suffer simply because they
can be cut. Other projects which were developed before the strategies
were refocused, will survive, simply because of the stage they
have reached and the legal implications of cancellation. We will
have a clearer picture on 8 June.
36. Longer term, the impact outlined in
paragraph 35 will mean the SW takes longer to reach its desired
goal.
37. Last autumn, we were asked to nominate
projects against which money could be rapidly spent in an attempt
to maintain the level of economic activity. The FSB in the SW
took part in these discussions and was keen to see work start
on the A30 in Cornwall and on improving fast broadband connectivity.
As far as we know, the SW has not benefitted from any funds to
pull forward any projects, let alone the ones mentioned above.
38. Key to future business success is adequate
skill levels. The SW has historically suffered from the highest
level of hard to fill vacancies at level 3. The FSB welcomed the
Train to Gain programme as a credible independent source of advice
and information about what training would help a business achieve
its objectives.
39. As has been previously stated, the SW
economy consists overwhelmingly of small businesses. The owner
often works in the business as well as doing the accounts, developing
new products and markets and seeing to the various regulations
and new laws. They also have to consider staff skill levels. With
everything else they have to do, new sources of help like T2G
take time to be recognised and appreciated. Consequently it probably
takes the SW longer to get on board with such schemes. To have
this vital source of assistance capped just when SW businesses
are starting to use it is very short sighted. As a result SW small
businesses are likely to be more wary about spending the time
to commit to future Government programmes—to everyone's
detriment.
Vivienne Rayner
Policy Manager, South West Policy Unit
2 Source-Small Business Service 2007 Back
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