Written evidence from the National Federation
of Enterprise Agencies, (NFEA), the National Enterprise Network
EXECUTIVE SUMMARY
NFEA represents over 100 independent and impartial
not for profit local enterprise agencies and other providers of
business support. We have many years of experience of delivering
support to new and growing businesses in a variety of different
funding and commissioning arrangements.
There is a clear distinction between business support
for established businesses and enterprise support, ie providing
practical support to those starting new businesses, which is a
sector of vital importance both to individuals and to local communities.
We welcome the proposed LEPs based on functioning
economic areas, and we support the public/private nature of the
partnerships. We are keen to be involved at both the strategic
and operational levels.
At this stage, three weeks before the deadline
for applications, we have concerns about the widespread lack of
clarity on LEP boundaries, the frequent absence of genuine partnership
working and engagement of business of all kinds. In particular
the 4-500,000 of new businesses formed each year, and the many
more people at the stage of contemplating starting new businesses,
appear to lack representation.
We are prepared to co-operate and work constructively
at a local level to build the new landscape of economic development:
we are concerned that an extended transition period, combined
with the disruption and reduced budgets we are already seeing,
may result in the capacity to provide on the ground support at
a local level being seriously eroded.
1. FUNCTIONS
OF THE
LEPS
The government's initiative in inviting the
formation of Local Economic Partnerships based on functional economic
areas is welcomed by NFEA and its membership in local enterprise
agencies and other providers of business support. We also welcome
the clear direction that the detailed proposed functions for the
LEPs are all intended to create the right environment for business
and growth.
Small businesses:
— are an engine of growth;
— are the biggest creator of new jobs;
— are better at moving people into employment
from worklessness;
— employ more disabled people, females
and older people;
— offer more flexible employment; and
— treat employees more fairly.
(Source: ONS 2007 Labour Force Survey
April to June).
We believe a successful enterprise economy means
both:
— a faster growing economy; and
— a fairer, more diverse, more cohesive
society.
These are both issues of great significance
in current times.
We also welcome the distinction the Government
has drawn between business support and start-up (we would refer
to as enterprise support.) There is clear market failure in the
provision of enterprise support. Our own research, conducted in
conjunction with Barclays Bank has demonstrated that new businesses
which take advice from enterprise agencies have 20% better survival
rates, 20% better growth rates and an objectively better level
of financial management.
We believe that the enterprise net should be
cast as widely as possible. The more people engaged in new business
starts, the more growing and innovative businesses we shall have.
The more engagement with enterprise support that they have, the
easier it will be to identify the businesses which will benefit
from specialist support.
Too much thinking in this area is dominated
by myths, such as:
— It is possible to pick winners at start-up
stage.
Long experience should have taught us by now
that picking winners, especially in the early stages of a new
business, is well-nigh impossible. Predictions rarely come to
pass. Circumstances change. More importantly, too many real growth
and innovation businesses are not identified and do not receive
the support they deserve. And many businesses have their ambitions
and aspirations transformed by exposure to professional business
support at crucial points in their development.
— Lifestyle businesses are of little value
and deserve no support.
This is an extremely patronising approach to
the vast majority of almost half a million people a year who start
a business. They are becoming economically self—sufficient,
they are plotting a route from benefit dependency, they are achieving
a long-held ambition, or they are perhaps supplementing retirement
earnings. They are all role models for friends and neighbours.
And some of them will become businesses of substantial scale.
— Too many new businesses fail.
It is often said that 1 in 3 new businesses
fail within three years of start-up. This is a misreading of the
figures.
Over 2 in 3 businesses survive for more than
three years but not all closures represent failure: less than
half the businesses which close are in financial distress. They
may have succeeded and been sold to new owners. They may have
closed as other better opportunities present themselves to their
owners. They may have used the businesses as a bridge into employment,
or to higher education. Whatever the outcome, they will have learned
valuable skills and enjoyed valuable experiences.
We recognise the focus on value for money. In
our experience the funding devoted in recent years to front line
business and enterprise support has been eroded by unnecessarily
bureaucratic commissioning and monitoring procedures and too many
intermediate layers of administration. Significant savings can
be achieved by a simpler model, and indeed the use of not-for-profit
partners such as local enterprise agencies.
2. THE REGIONAL
GROWTH FUND
I attatch as an appendix our response to the
concurrent Regional Growth Fund consultation.
3. TIMETABLE
FOR CONVERSION
AND TRANSITIONAL
ARRANGEMENTS
A recent NFEA board meeting canvassed opinions
from around the country. Concerns were expressed at the lack of
agreement and clarity of LEP boundaries in many parts of the country,
(particularly in view of the short time-scale to the application
deadline), at the frequent absence of a partnership approach and
a patchy engagement with business. A specific concern was raised
that in many parts of the country, budget cuts and uncertainty
was threatening the delivery of a start-up service now. Local
enterprise agencies have a long history of flexibility and responsiveness
to new arrangements in the public sector and we are confident
that our members can adjust appropriately to whatever new arrangements
for enterprise support emerge. There is a concern however that
a long-drawn out interregnum could cause irreparable damage to
the network and its resources.
APPENDIX
CONSULTATION ON THE REGIONAL GROWTH FUND
Are there any benefits to be had from allocating
different elements of the fund in different ways?
There are a number of issues here.
Formula grant to LEPs
It could be argued that a formula grant to LEPs
could bring equity and fairness to Fund distribution. However
such an approach would detract from the competitive element of
the bidding process, thus reducing the overall quality of the
investment the Fund will make and will also risk losing control
of the public investment.
Capital versus revenue
We are not sure that the distinction is quite
so clear cut, with capital expenditure necessarily having revenue
implications. Capital projects are relatively higher risk in terms
of timescale and budget and the link to economic growth can be
tenuous. Revenue funding can support defined and targeted projects
but sustainability issues need to be addressed. Whilst we would
not rule out capital projects, issues round feasibility, deliverability
and relevance need to be appraised carefully.
National versus local
We recognise the need to support LEPs and their
priorities but nevertheless feel that scope should be available
for projects targeting wider areas, up to national level. They,
in turn, can be made available to LEPs for local adoption.
Link to national Government action
Arguably greater value for the public purse
can be gained by funding projects which support national policies
and priorities.
What type of activities should the fund support
and how should the fund be best designed to facilitate this?
We believe the Fund is best directed at activities
which directly promote enterprise and economic growth. Strict
criteria should be applied to infrastructure projects, which have
the risks mentioned above in relation to all capital projects,
to ensure they contribute directly and substantially to these
objectives.
Do you think these are the right criteria for
assessing bids to the RGF?
Yes. We would additionally suggest that links to
national government policies and strategies should be included.
Given that market failure is a criterion, we would
be concerned that the requirement for "significant private
sector leverage" may prove an obstacle to otherwise worthwhile
bids.
Do you think we should operate a two-stage bidding
process?
Yes. You may wish to make a contribution to
the costs of second round bids.
Should a Regional Growth Fund become a long-term
means of funding activity that promotes growth?
Yes. We support the concept of a continuing challenge
fund.
In general, we believe the Regional Growth Fund is
a worthwhile initiative, and build on previous initiatives such
as the Phoenix Fund and LEGI. However there seem to us to be tensions
in the Proposal as currently drafted, in particular relating to
the role of LEPs and private sector involvement.
Whilst access to the fund is not restricted
to LEPs, they would appear to be favoured, therefore running the
risk of deterring worthwhile independent projects, and projects
covering larger areas of the country.
We also worry about the availability of private
sector financial investment as a "key consideration",
especially as, by definition, the areas at which the Fund is targeted
would tend to have a relatively modestly-sized private sector.
The Panel ought to be able to recognise the contribution of social
enterprises and the voluntary sector in indirect financial ways
(low overheads, lower direct costs, smaller margins) and non-financial
ways (use of volunteer staff, greater motivation towards social
objectives).
NFEA IS THE
NATIONAL ENTERPRISE
NETWORK
Our members are drawn from local enterprise
agencies and a wider range of enterprise support organisations
and provide an array of services to new and emerging businesses,
including independent and impartial advice, training and mentoring
to all who seek them. With roots dating back to the 70s, NFEA
members are social enterprises, with boards drawn from the local
community, and have extensive experience of providing support
to new and emerging businesses, and with representation in over
250 locations, they offer an unrivalled route to this market.
In 2008 alone, the NFEA network of enterprise support
organisations supported over 100,000 pre starts, nearly 25,000
start ups and 130,000 established businesses—totalling over
250,000 clients across the country. Many NFEA members have expanded
in scope and now provide advice and guidance to a wide range of
clients ranging from young people in schools, colleges and universities,
through the pre-start and early stages sector to established businesses.
Many are able to supplement their core services with the provision
of incubation and managed workspace where they support over 2,000
businesses, and with tens of millions of loan and investment capacity.
Full NFEA members are required to meet exacting
quality standards covering both their individual advisers and
the organisation. NFEA owns, with a partner, Customer First UK
Ltd, the national standard for Customer Service, and manages the
Approved Local Enterprise Agency register on behalf of the Secretary
of State.
13 August 2010
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