Memorandum from the Federation of Small
Businesses (FSB)—West Midlands (WM 08)
INTRODUCTION
Small Businesses in the West Midlands are suffering
disproportionately from the recession compared to other regions
of the United Kingdom. This is being exacerbated by areas of national
government policy which we feel increase costs disproportionately
for small businesses and which are being implemented at a very
difficult time. They do not appear to take account or show any
understanding of the current trading environment. Examples include
Empty Property Rates or holiday entitlement changes.
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.
The responses in this submission concentrate
on the issues affecting FSB members in the West Midlands' region.
Regarding Central Government policy, the FSB lobbies relevant
bodies through our Press and Parliamentary office in Westminster.
Details of FSB policy on current national issues such as the Budget,
Short Time Working Assistance and National Non-Domestic Rates
can be found at the links below.[13]
1. The effect of the financial and economic
situation on businesses in the region including the effect on
different sectors such as manufacturing, service industries etc
FSB members across the West Midlands have reported
significantly decreased levels of trade,[14]
making them very cautious about expansion plans or longer-term
business activity. As unemployment levels in the West Midlands
are amongst the highest in the country it is understandable if
individuals, afraid of redundancy or reduced hours, are holding
back on making large purchases such as cars, home entertainment
or mid-range goods. There is some anecdotal evidence however that
where consumers are making purchases, such as new "white
goods", they are buying better quality goods.
Members connected to the automotive industry
are experiencing serious difficulties as the large OEMs reduce
production or take extended breaks. The construction industry
is also experiencing major difficulties. However, again there
is anecdotal evidence that smaller builders and other skilled
traders are taking on more small domestic projects than previously,
reacting to opportunities presented by the slow-down in the housing
market as people look to upgrade existing property.
The problems in the retail sector are well-reported
and the West Midlands are no different. Small shops in towns and
cities within the main conurbation have been experiencing difficult
trading conditions for some time and the increased costs associated
with those locations often proving to be the final straw. We have
been concerned for some time about the impact on the independent
retail sector of the rise and development of large supermarket
and retail chains. We have campaigned for improved town centre
policies (such as parking charges policies) that ensure competitive
opportunities for small independent retailers are offered to enhance
the retail offering and experience and avoid the development of
"clone-town centres".
For small independent shops in suburban and
rural areas the picture is more mixed, as consumers consider transport
costs and seek out more local options. However, there is an additional
consideration for businesses in these areas, as reports are starting
to emerge of increased levels of crime such as shoplifting, "bilking"
and more worryingly, robbery.
However, wherever located, it is fair to say
that the retail environment across the West Midlands remains very
challenging.
On a better note, the decision by Central Government
to pay invoices within 10 days is a success and is filtering
through to the broader public sector. According to FSB surveys,[15]
the West Midlands is doing better than other regions or devolved
countries. Only 16% of WM respondents had to wait longer than
10 days for full payment from invoicing, compared with 20%
across the UK or even 22% in the North East.
2. How effective are Advantage West Midlands
and initiatives such as Business Link being in assisting businesses
in the current climate, including helping them to gain access
to funding both from Government funding streams and through the
banking system
The re-establishment of the Advantage Transition
Bridge Fund, whilst not generally used by very small businesses,
has been a good initiative and appears to be working well. However,
the lower threshold of £50,000 is too high for many
small businesses. Whilst we recognise that the Community Development
Finance Initiatives (CDFIs) are in place for smaller loans, there
are complaints that the costs of this finance are very high (around
15%), therefore putting small businesses at an immediate disadvantage
to their larger counterparts who are more likely to be able to
negotiate more competitive rates from other lending sources.
We have found AWM very helpful with individual
cases where FSB staff officers have contacted them direct and
the www.supportwm.com website has received favourable comments.
The FSB promotes the contact details of both
AWM and Business Link through our webpages, newsletters and by
our professional staff on a regular basis. However, reports of
local businesses turning to either of these agencies for funding
are scarce. The FSB survey[16]
on members' experiences of the new Business Link service between
April 2007 and March 2008 showed that the service was
not reaching its target audience, with very few small businesses
choosing to approach Business Link.
It is to be acknowledged that Business Link
has made some significant steps forward in recognising their clients'
needs, which is encouraging. The most notable is the recent radio
advertising campaign which seemed to strike the right note. However,
this will be wasted effort if the experience of businesses using
the service does not match expectations. It is therefore unfortunate
to hear of reports from members attending recent credit crunch
seminars where they felt the content was aimed at businesses employing
more than 20 people, when the majority of attendees at the
meetings concerned employed less than five people or had no employees
at all.
We have reports from members experiencing slow
responses from advisors following initial calls to the Business
Link central call centre. We also understand that a training programme
for Business Link advisors has been recently undertaken, but again
reports from members who contacted BLWM at that time suggest there
was a shortage of advisors to respond to calls. Whilst we are
pleased that training is being given, it needs to be undertaken
in such a way that continuity of service is maintained.
We were very disappointed that the Scrutiny
Panel examining the Business Link service in the West Midlands
was suspended as this does not engender confidence in the claims
that it has become a more open and transparent service.
3. The response of banks and other financial
institutions to Government and other initiatives to stimulate
bank lending and the access of businesses in the region to credit
The banks are not being very helpful at all.
Minsters placed a great deal of faith in "High Street"
banks when they were tasked to provide the financial support businesses
need from taxpayers' coffers. We have several case studies of
banks which have foreclosed on long-standing and trouble-free
overdraft arrangements with highly reputable business owners.
The effects of this cannot be over-emphasised; the immediate and
unforeseen withdrawal of an overdraft is usually catastrophic
to a business. In one instance we asked AWM to help with a particularly
difficult banking situation and despite a great deal of assistance
from AWM, this matter is still unresolved and worsening. Rather
unsatisfactorily, the bank in question is not happy that the customer
contacted AWM and the relationship has now reached new lows.
Many small businesses report feeling "bullied"
by the banks into using their homes as additional security, despite
having sufficient collateral in property and other assets within
the business.
There are also very many complaints about difficulties
contacting relevant people at their Banks, the banks' inability
to return calls or respond to emails, rapidly changing lending
arrangements and a difficulty in actually understanding what the
banks count as a viable business proposition.
They often do not seem to be aware of any factors
outside the control of the business, often making unrealistic
suggestions to "help" a business such as "sell
the business premises and downsize". Current market conditions
indicate this would be an option only when the commercial property
market improves.
We have also heard of problems in respect of
excessive and punitive exit charges, making it harder for businesses
to change banks.
On the other hand, in our discussions with senior
members of a number of banks in the West Midlands, they defend
their loans policy by highlighting the restrictions imposed by
the Government scheme which necessitates them taking every step
possible to protect the loans made as well as the imposition by
Government of an additional 2% interest rate on top of their own
commercial requirements.
Although few FSB members use credit insurance,
of those that do, the contraction of this aspect of the insurance
sector has caused significant problems, particularly for those
businesses in the automotive, manufacturing and construction sectors.
4. The role of the West Midlands Task Force
established by the Regional Minister in helping businesses cope
with the economic downturn
Although the FSB was represented on the Rover
Task Force, we were not asked to participate in the West Midlands
Task Force. Because of our close involvement in the Rover Task
Force, we had a level of confidence that the perspective of the
small businesses in the supply chains affected by the collapse
of Rover were considered and accounted for.
We have little or no experience of the work
of the West Midlands Task Force and therefore feel unable to comment
further.
5. The role of other Government agencies such
as the Government Office for the West Midlands, and of partnerships
between Government agencies, local government and the private
sector, in providing support for businesses
We appreciate the regular monthly meetings with
the Regional Ministers, initially Liam Byrne MP and then latterly
Ian Austin MP, and feel these provide useful platforms to discuss
pressing issues in greater detail. We would wish the current frequency
of these meetings to continue.
Contact between the West Midlands' Policy Unit
of the FSB and GOWM representatives has increased in recent months,
with clearer channels of communications now agreed.
At member level it should be noted however,
that small businesses are often reluctant to approach Government
agencies for assistance, preferring to deal with their accountant
and to turn to family, friends, colleagues or membership organisations
such as the FSB for information, advice or guidance. Where they
may know about, and sometime make use of, agencies such as Business
Link, Train 2 Gain, Job Centre Plus and local authorities,
they are less likely to approach Government Offices or Regional
Development Agencies direct.
The work of the West Midlands Business Council,
of which the FSB is a founder member, facilitates excellent partnership
working between public and private sector groups, ensuring the
business voice is heard. We would want the public funding for
this organisation to continue.
APPENDIX 1
FSB SNAP POLL—WEST MIDLANDS RESULTS—JANUARY
2009[17]
IN THE
PAST TWO
MONTHS:
Trade Levels:
57% of WM respondents said their trade had decreased
compared with 54% of respondents across the UK. Only respondents
from Northern Ireland had experienced a greater level of downturn
(65%). However the picture is slightly less gloomy than in November
08, when 64% of WM respondents saw trade decrease. 13.8% of WM
respondents said their trade had increased compared with 17% across
the UK. Again NI reported the worst experience with only 10% seeing
an increase. Although the picture has improved slightly, it is
not improving in the West Midlands as well as the rest of the
UK. In November WM = 11.2%/UK = 11%.
Payment Times:
37% of WM respondents saw an increase in payment
times, 10% saw a decrease and 53% saw no change. This compares
to 36% seeing an increase, 10% a decrease and 54% no change across
the UK, showing that payment times in the WM are broadly in line
with the UK average. With public sector payments the West Midlands
does better than other regions. Only 16% of WM respondents had
to wait longer than 10 days for full payment from invoicing,
compared with 20% across the UK or even 22% in the North East.
8.45% of WM respondents were paid within 10 days compared
with 6.02% in the UK. Only Scotland recorded better levels of
prompt public sector payment (8.54%). (Over three quarters of
respondents do not deal with the public sector).
BANKS, FINANCE
AND INSURANCE:
Credit Insurance:
The WM respondents' experience of using Credit
Insurance was broadly in line with the rest of the UK. 81.9% do
not use it, 0.3% had paid less for it, 7.8% had found it more
expensive and 9.9% found that costs stayed the same. Across the
UK, 83.2% do not use it, 0.4% are paying less for it, 8.4% are
paying more and 7.9% are paying the same.
Existing Finance Costs:
Slightly less WM respondents are reporting increasing
costs than in Nov 08. 26.5% in Jan 09 compared with 29.8%
in Nov 08. This is a slightly better experience than the UK average
(28% Jan—30% Nov).
New Finance Costs:
Again, fewer WM respondents are reporting increased
costs with new credit. Only 25% reported higher costs in January
09 compared with 29.8% in November. This compares slightly
better with the rest of the UK = 27% Jan-30% Nov.
Credit Requests:
WM respondents are the least likely to be turned
down for credit compared with the rest of the UK. Only 14.7% were
turned down for credit, compared with the UK average of 17.6%.
The region where the most respondents were turned down was Northern
Ireland = 25.4% followed by the North West = 21.3%.
Bank of England Focus:
Compared with the UK (23.7%), 29.7% of WM respondents
were the third highest region behind Northern Ireland (38.4%)
and Wales (29.8%) asking for further decreases in interest rates.
Only 10.4% of WM respondents were looking for an increase in rates,
compared with 12.9% across the UK. NI was the only region less
likely to look for an increase in rates (5.9%).
GOVERNMENT POLICY:
Government guaranteed finance schemes:
55% of WM respondents said the schemes would
not encourage increased bank lending, 28.8% said it would and
16.3% were not aware of them. This is broadly in line with the
average UK response; 53% across the UK said they would not encourage
increased bank lending, 28% said they would and 19% were not aware
of them.
£1.3 billion Enterprise Finance Guarantee
scheme:
10.4% of WM respondents said that the EFG scheme
was available from their bank, 25% said it was not available and
63.7% were not aware of it. This is again broadly in line with
the UK response; 8% said it was available from their bank, 26%
said it was not and 66% were not aware of it.
Responsibility for getting the UK economy back
on track:
WM respondents held similar views to the UK
average for who is mainly responsible for getting things back
on track. 32% felt it was the responsibility of the banks, 21%
the Government, but 46% felt that business should be the ones
to do it. The figures for the UK were banks-36%; Government-21%
and business-43%. Interestingly in the East Midlands, 42.9% of
respondents felt the main responsibility rested with Government
and only 19.7% with business.
FSB SNAP POLL—WEST MIDLANDS RESULTS—APRIL
2009[18]
IN THE
PAST TWO
MONTHS:
Trade Levels:
48% of WM respondents said their trade had decreased
compared with 46% of respondents across the UK. Once again, only
respondents from Northern Ireland had experienced a greater level
of decreased trade (56%). In keeping with the trend seen in the
previous two polls, the picture is continuing to become less gloomy.
In January 57% of WM respondents were reporting a decreased and
in November 08 it was 64%.
23% of WM respondents said their trade had increased
and shows an improvement on the figures for January when 13.8%
reported an increase and for November when it was only 11%. We
are now in line with the UK average (23%).
BANKS, FINANCE AND INSURANCE:
Existing Finance Costs (such as loans or overdrafts):
Fewer respondents are reporting increased costs
for existing finance that the previous 2 polls. 24.4% of
WM respondents found their existing finance had cost more in April
compared with 26.5% in Jan 09 and 29.8% in Nov 08. This is
a slightly better experience than the UK average (27.7% Apr-28%
Jan-30% Nov). The West Midlands also had the highest level (29.3%)
of respondents stating they were not experiencing increased costs
with existing finance compared with the UK average of 25.4%.
New Finance Costs:
24.4% of West Midlands' respondents reported
higher costs for new finance staying at the same level as the
last survey (24.4%). In November it was 29.8%. The North West
reported the fewest respondents experiencing increased costs for
new credit (21.4%) and Northern Ireland had the most with 47.8%.
The UK average = 27.7%-April; 27%-Jan; 30% Nov.
Credit Requests:
Again, WM respondents are the least likely to
be turned down for credit compared with the rest of the UK. Only
14.9% were turned down for credit (14.7%-Jan), compared with the
UK average of 18% (17.6%-Jan). The region where the most respondents
were turned down was once again Northern Ireland = 25.4%, followed
by London = 21.9%.
13 FSB National Policies- http://www.fsb.org.uk/default.aspx?id=0&loc=policy.
FSB's Budget Submission- http://www.fsb.org.uk/documents/budget/.
FSB & TUC's proposal for Short Time Working Assistance- http://www.fsb.org.uk/policy/assets/tuc%20-%20fsb%20one%20pager.pdf.
FSB's Rate Relief Campaign- http://www.fsb.org.uk/default.aspx?id=688&loc=policy. Back
14
FSB Snap Poll Survey January 2009-see appendix 1 Back
15
FSB Snap Poll-Jan 09-see Appendix 1 Back
16
FSB West Midlands Policy Unit Business Support Survey published
Oct 08- http://www.fsb.org.uk/policy/rpu/wm/assets/fsb%20wmpu%20business%20support%20report%20oct%202008.pdf Back
17
Over 4,000 small businesses were surveyed between Friday
30 January and Monday 2 February 2009 on the effect
of the economic climate. Over 300 respondents were from the
West Midlands region. Back
18
Over 4,500 small businesses were surveyed between Thursday
16 April and Monday 20 April 2009 on the effect
of the economic climate. Over 400 respondents were from the
West Midlands region. Back
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