Written evidence from the Federation of
Small Businesses (FSB)
The Federation of Small Businesses (FSB) welcomes
the opportunity to submit evidence to the Committee Inquiry.
The FSB is the UK's leading business organisation.
It exists to protect and promote the interests of the self-employed
and all those who run their own business. The FSB is non-party
political, and with 213,000 members, it is also the largest organisation
representing small and medium sized businesses in the UK.
Small businesses make up 99.3% of all businesses
in the UK, and make a huge contribution to the UK economy. They
contribute 51% of the GDP and employ 58% of the private sector
We trust that you will find our comments helpful.
1. This submission addresses the Federation
of Small Businesses' (FSB) current thinking on the emerging Local
Enterprise Partnerships (LEPS). It considers the firstly the future
role of LEPs and makes the point that the functions of the partnerships
should be focussed exclusively on economic development. In doing
so sets out some key issues which LEPs will need to be able to
address. It states that LEPs should be both business led and reflective
of areas of economic activity, rather than existing boundaries.
As part of this there must be representation of the interests
of small businesses and the self employed in the area. The submission
suggests that there should be basic independent funding for LEPs.
The FSB also has some concerns regarding the transition from RDAs
to LEPs and the submission asserts that we would like to see detailed
plans for handling it in a way which ensures minimum disruption
2. The submission goes on to address issues
related to handling those functions which the government has indicated
it wishes to be led nationally in a post RDA environment. In particular
The need to ensure than any future approach
to inward investment is fully responsive to local need.
That there are opportunities for better
provision of business support at a national level, but that good,
direct face-to-face local provision must be retained.
That LEPs could still have a role to
play in promoting innovation and sector leadership.
That better access to finance is of vital
importance to small businesses and that LEPs provide an ideal
vehicle to drive and co-ordinate local investment through a variety
of local schemes.
That skills and training provision would
benefit from a demand led system if it focuses on the needs of
business, but that there may be opportunities for LEP involvement
through working with local education and training providers in
a commissioning capacity.
3. The submission also touches on the issue
of rebalancing the economy and urges that it is approached in
a way which recognises the complexities of the current reliance
on public sector investment.
4. This submission addresses some basic
principles which the FSB believes are vital for the future roles
of LEPs including the functions and funding of the partnerships
and co-ordination both between different LEPs and with national
government led functions.
5. The committee particularly asked for
submissions focussed on the FSB's views on:
Handling the activities that the Government
has said it is considering making national such as inward investment,
sector leadership, business support, innovation and access to
finance under a non-RDA structure.
Rebalancing the Economy under the new
The capacity of local authorities to
cope with a new structure at a time of reduced budgets.
The future of skills and training.
6. The LEPs' role should be exclusively
to promote economic development and the proposals for the key
areas on which the LEPs should concentrate are in principal correct.
The FSB believes that the LEPs need to retain a narrow focus on
driving employment and enterprise. Issues such as planning, local
transport and infrastructure are also key factors in economic
development. So LEPs need to be able to tackle them effectively.
However it is important that they remain focussed within the context
of promoting local economic development. Originally, the RDAs
were given five roles/functions centred on economic development,
regeneration, investment, competitiveness, and employment and
skills. But since 2000 no less than 16 additional responsibilities,
including Business Link, were placed on them so the original objectives
were diluted and lost. LEPs need to retain their focus.
7. The information provided by government
as to the functions and powers LEPs will be granted to address
these issues has so far has been extremely limited. Also, in advance
of the Comprehensive Spending Review it is difficult to know what
funding streams will be available and which, if any, will be available
to LEPs to lever in tackling their priorities. The FSB realises
that we are now operating in a different environment where government
intervention and public spending cannot be seen as the solution.
If the economy is to grow strongly in that new environment then
there is need for local communities to generate solutions. The
FSB firmly believes that small businesses are in a strong position
to help deliver these. We know from our own membership how good
small businesses are at problem solving and finding efficient
ways of achieving results. Bringing these skills and knowledge
together behind LEP priorities will be key to their success.
8. If LEPs are to enhance the economic performance
of their area it is vital that the powers that they are given
are appropriate and sufficient, particularly if spending power
is limited. For example LEP's should be given the freedom to use
planning and licensing levers or targeted business rate discounts
to encourage business development in a particular area. Existing
local authority business levers need to be considered in the context
of how they can be improved and utilised by LEPs.
9. LEPs should give the lead in strategic
economic development and leadership in their area. Using "improving
local transport" as an example, transport issues, especially
road transport, are of fundamental importance to small businesses.
Transport and travel to work patterns are closely related to the
geography of economic areas and therefore it is right that local
transport strategy is approached in a way which crosses traditional
local authority boundaries. If the new LEPs are genuinely reflective
of natural economic areas then they should be better positioned
to address these issues. In order for them to do so effectively
they should be given the power to develop an economic strategy
for their area and to prioritise investment in transport and infrastructure
within the LEP area accordingly. If LEPs are to be able to generate
the right environment for business and growth in their area then
this approach needs to be mirrored across all issues on which
LEPs are to take a lead.
10. LEPs must have the capacity to address
all issues which impact on economic development. In particular:
Infrastructure, including encouraging
local solutions to deliver high speed broadband connectivity.
Planning and Housing at a strategic level
where it relates to economic development.
TourismThis is a major economic
driver in many parts of the country but especially in rural areas.
Promotion of and support for tourism relies on funds from the
RDAs and local authorities, which is under threat. LEPs must be
enabled to continue to invest in this key part of the local economy.
Low Carbon agendaIf moving towards
a low carbon economy remains a priority then the LEPs should be
well positioned to help drive it, through for example, encouraging
the procurement of more services and goods locally.
Skills & Training By being
able to commission local businesses to work in partnerships with
local colleges, universities and training providers to set up
Group Training Associations and Apprenticeship Training Agencies
where there is local business need.
11. In pushing some responsibilities down
from RDAs to LEPs while at the same time taking others upward
to be led nationally there must be some clear coordination so
that local initiatives gel with national strategy. It is also
important that emerging LEP policy recognises the interconnected
nature of local economies. Mechanisms must be put in place to
allow LEP's to both work together on a sub national level, for
example when considering co-ordination of transport connections
which run between multiple or neighbouring LEP areas and also
to co-ordinate with those departments handling national level
strategy. LEPs should also be encouraged to work together to promote
specific one off projects such as the creation of a key rail or
road transport route. The FSB would also support collaborations
between LEPs in the creation of focussed, targeted partnerships
to promote enterprise in particular areas such as infrastructure
or sub-regional economic development.
12. While the government has expressed an
intention to place certain RDA functions under national leadership,
there is a lack of clarity about how this would work and how much
of the delivery and capacity to manage local activity will be
retained by LEPs. There is a danger that this will contradict
the government's "localism" agenda and undermine the
capacity of LEPs to deliver economic development if it is not
13. LEPs must be sustainable in the long
term, including surviving political change at both local and national
level. They must also be able to influence national government
and its agencies, particularly given the intention to transfer
a number of functions upwards to national level.
14. If LEPs are to remain efficient and
value for money then their role should extend to identifying strategic
priorities and undertaking appropriate commissioning work, but
not into areas of direct delivery.
15. The FSB supports LEPs of any size and
coverage provided that they are reflective of the local economy.
However, care must be taken to ensure that they have the capacity
to deliver economic development. In some cases RDAs were seen
to be too large and diffuse to represent a genuine local economic
area. Conversely, it is vital to ensure that the reverse does
not occur with LEPs. They must represent an area of economic activity
rather than being allowed to reflect existing local authority
boundaries or through a reluctance to collaborate more widely.
In the smaller LEPs both the public sector and business community
must be sure that the LEP is viable. In particular the FSB would
like to clear plans for ensuring that the proposals for LEPs have
the full backing of their local business community before they
are given the go ahead by government.
16. The FSB has welcomed the government's
indications that business will be equally represented on LEPs,
with business taking the chair. We also welcome the commitment
by the Secretary of State for Communities and Local Government
that the small business voice should have a central role in the
partnerships. It is vital that the voice of small businesses and
the self employed is represented on LEPs. The FSB would like to
see clear stipulations which ensure representation for small and
micro business interests is consistent across the country.
17. In order that the LEPs have the strongest
independent business voices possible the FSB would like to see
provisions for preventing commercial conflicts of interest between
LEP membership and involvement in delivery of LEP related activity.
Funding & Capacity
18. The FSB has concerns over the funding
of LEPs and this links closely into the issue of the capacity
of local authorities to cope with a new structure at a time of
reduced budgets. It is the FSB's view that the LEPs should not
be funded from local authority budgets but provided with basic
funding for a streamlined secretariat and administrative function
and to access research and advice. This will assist with identifying
the correct priorities and developing strong proposals and bids.
19. If the administration of LEPs is left
to local authorities this is, firstly, likely to lead to local
authority dominance of the agenda and, secondly, there will be
concerns about whether local authorities have the capacity to
help deliver economic development over and above their current
activity given the public sector funding climate. At present,
other than undertaking Local Economic Assessments, economic development
is not a statutory requirement for local authorities who are already
facing significant pressures right across their budgets. It is
absolutely vital that LEPs are private sector led and do not become
a form of local strategic partnership. Moreover, given that the
Regional Growth Fund appears likely to be particularly targeted
at those areas that are more dependent on the public sector it
raises questions as to how those LEPs outside of these areas will
have the capacity to deliver outcomes for their businesses and
communities. If LEPs are required to rely on local authority and
large national business funded support then there is a significant
danger that the voice of small and micro businesses who are the
drivers of their local economies will get squeezed out. Funding
streams for economic development which the LEPs have access to
should also remain independent of local authority budgets so that
it can truly drive economic development and not risk being drawn
into covering budget shortfalls.
Transition from RDA to LEPs
20. It is vital that during the period of
transition between RDAs and LEPs that the skills, experience,
and useful networks now present in the RDAs are not lost. For
example, an important aspect of the RDAs' work was the routing
of European and Government investment funds. Among the beneficiaries
are Rural Regeneration Zones (RRZs) and Accelerated Development
Zones (ADZs). And equally important to business was the identification
of employment land and brown field sites. Most RDAs also have,
or had, a Regional Observatory, which collected regional data
and with statistics from ONS, produce statistical reports about
the state of the region.
21. At a lower level there are Local Development
Frameworks, which will be set in stone next February, and Community
Strategic Partnerships (CSPs). Added to this there are Local Area
Agreements (LAAs), which together with Local Strategic Partnerships
(LSPs), are responsible for the routing of some local authority
funding, including economic monies. A number of areas have also
formed Multi Area Agreements (MAAs). Significant care needs to
be taken as to how these different structures and strategic approaches
fit together in the new environment, as business will want to
focus resources where it is most effective.
22. The previous Government also asked all
the English unitary and upper tier shire councils to prepare an
economic assessment of their area. Many authorities will have
done work on these assessments. The data gained so far could be
of use in the future, particularly as LEPs begin to look at the
priorities for their local area. Work already undertaken should
not be thrown out with the change in structures.
23. It is important for business that there
is as much continuity as possible and the FSB would like to see
the government issue clear plans for handling the process of transition
as soon as possible.
24. The FSB would also like to see some
clarity from the Government on a number of questions. Firstly,
how will the Government utilise LEPs on EU funding? Currently,
RDAs are the portal at which the EU supports the regions, across
the member states. As LEPs will not be bounded by regional constraints,
this needs to be considered. The FSB recommends that this finance
is kept at national level and distributed to LEPs on a project
basis. This must be done in a way which ensures distribution according
to the needs of LEP areas and prevents larger LEPs from dominating
25. Secondly, there is a question about
the existing loan, grant and equity projects RDAs have. Many organisations
and firms will be mid-way through contracts and projects and as
such, will need clear guidance of how the demise of RDAs will
impact on them. LEPs will not be taking over the existing regional
boundary, or even carrying out the same process and functions,
so this may cause concerns.
26. The government is proposing to move
responsibility for some functions including inward investment,
business support and access to finance to a national level. If
this is to happen then it is vital that proper mechanisms are
put in place to ensure that LEP's and local business have a strong
voice in influencing the implementation of those strategies in
their area and ensuring they take account of local need.
27. The current system has led to some duplication
and overlap in terms of inward investment strategy (for example
through multiple overseas inward investment offices and RDAs competing
to attract the same organisations to their region). Better co-ordination
of inward investment activity across the UK is therefore needed.
Nevertheless, the FSB has some concerns about the responsibility
for inward investment being led exclusively on a national level.
As mentioned above there is a risk that this contradicts with
the localism agenda. Investment must not be allowed to gravitate
to the economically stronger areas of England, creating further
imbalance in the economy.
28. The FSB believes that aspects of inward
investment strategy must still be driven locally. For example
the identification of an area as a destination for a particular
sector requires a local business perspective. If the Government
decides to proceed with their proposals to lead inward investment
activity at a national level then any approach must be strongly
influenced by local need and priorities. It should be for LEPs
to identify the strengths and weaknesses of their local economies
and decide how they would benefit from inward investment and/or
focus on developing local business growth, and then co-ordinate
with the national body on any activity. The Government must ensure
it works with all LEPs in attracting the right businesses to the
29. There have clearly been changes in terms
of the way that businesses can access information and therefore
scope to bring together some of that provision nationally; for
example, through the improvement of online resources. Management
of functions such as web-based portals should be handled nationally
and should help to ensure a consistency of business support services
across the UK. However, it is vital that direct, face to face,
advice and support is preserved and continues to be provided at
a local level. Any new system must ensure that services remain
easy to access and are of direct benefit to businesses. Access
to IT technology and broadband services are not universal, particularly
for small businesses and centralised provision should not be seen
as a replacement for direct support.
30. If regional business support programmes
are going to be contracted on a national basis then a mechanism
needs to be in place to give LEPs an input into their delivery.
The ability to monitor centrally contracted business support services
should be made an integral part of LEPs role. In particular LEPs
should be given the powers to influence the provision of support
for business start ups and businesses that are in the early stages
of growth. The role of enabling small and micros businesses requires
a perspective based on knowledge and insight into the local economy
and the capability to oversee and monitor progress.
31. It is not clear that there are sufficient
differences between the needs of regions to justify the management
of innovation at a sub-national level. Like elements of business
support there is scope for this function to be simplified and
managed nationally in a more efficient manner. Nevertheless, like
business support, it is vital that face to face advice continues
to be delivered in an accessible manner on the ground. Innovation
should be seen as more than simply applying to high tech sectors
such as IT and bio-technology. It should be used to encourage
investment in innovations, such as opportunities in the media
industry, that can improve business productivity and profitability.
This is particularly important for start ups and emerging small
businesses where margins are often tight. For example, a LEP could
help to promote increased public procurement with local small
businesses. Part of this would be helping businesses deliver services
more efficiently through utilising innovative technologies or
techniques and therefore be in a position to bid for contracts.
32. The ability for local economies to support
and drive particular sectors and clusters must not be diminished
by putting sector support into a solely national function. It
is important that this can be properly coordinated with the LEPs'
overall approach to economic development. There is already a tendency
for businesses to cluster where they can best collaborate together
and LEPs could offer a good opportunity for local economies to
help encourage this type of growth locally.
Access to finance
33. Access to finance is the lubricant that
will drive economic prosperity. It requires both national drive
and local innovation and delivery because its availability is
vital to all businesses, particularly small and medium sized enterprises.
The banks have the capacity to deliver the access to business
finance in a manner and on a scale which will make it easier for
small businesses to survive and grow. This requires a strong top
down push to ensure that enterprises across the country are given
the access to finance that they so desperately need.
34. It is vital that the banks and other
lenders fulfil their obligations and lend locally to all businesses
large and small, irrespective of sector, so that firms can invest
in growth and help rebuild the economy. The FSB has undertaken
research on small business finance since 2008 and have seen slight
improvements in the cost of new and existing finance, and the
number of firms being accepted for finance.
However, more work needs to done to improve the situation and
the FSB believes that LEPs will have role to play.
35. The new environment is going to require
efficient and responsive local solutions and the FSB recommends
that LEPs are an ideal vehicle to be able to drive local investment
through schemes such as Community Investment Trusts (CITs). These
vehicles would draw down money from organisations and state agencies
(EU, Government Funding Streams, Lottery, big business, etc) which
is then invested into worthwhile community business projects such
as social enterprises, keeping social hubs openpubs and
post offices for exampleand other business related causes.
The structure of CITs is a board of people (from local authority
and business) who decide funding priorities and manage the fund
investment team. All monies would be retained by the CIT and invested
giving community investors a dividend. Investees would enjoy the
same tax incentives as those who invest in Venture Capital Trusts.
Capital Gains Tax is not paid on any gain made on the disposal
of VCT shares. Also dividends on ordinary shares in VCTs are exempt
from income tax. LEPs are in the best position to know what is
needed in their area.
36. Certain local authorities have decided
to set up council banks, such as the Bank of Essex. While the
council brought in a bank to provide the back office services
and administration for the project, the local authority devised
the criteria and priorities. LEPs should be allowed the freedom
to explore these routes of economic development especially where
bank branches have closed and other access to finance is particularly
37. Additionally, LEPs should look into
the potential to use the Financial Intermediary Scheme which helps
small business who find attracting credit through the major banks
difficult. This scheme could be funded by the proposed streamlining
of Business Link and administered through private financial intermediaries,
where the LEP could take a commissioning role. The scheme could
also help start up businesses in developing business plans and
sourcing alternative financing models if necessary.
Skills and training
38. The FSB is supportive of a demand led
system so long as the focus is also on the needs of micro and
small businesses as opposed to providing skills at a deadweight
loss. FSB members were largely unimpressed by Train to Gain in
terms of awareness. Those who experienced the Information, Diagnostic,
Brokerage element felt the service was suitable. But, reaching
the hardest to reach businesses has proved difficult. In an FSB
survey in May last year, 88% of businesses had not taken up an
offer of training through Train to Gain in the previous six months.
39. At the local level the FSB is concerned
by the focus on driving up numbers on programmes as opposed to
the demands of small businesses. The FSB is keen to see a system
whereby employee training is commercially focussed through colleges
and training providers so that skills are obtained to better suit
small business. Unitisation of learning is critical in the skills
system and we encourage the Qualifications and Credit Framework
to make it easy for training providers to gear learning in this
40. An excellent example of why LEPs need
small business representation is that for too long employee training
has been focussed at the majority rather than the hardest to reach
smaller businesses who cannot get their training recognised. In
terms of apprenticeships, fully functioning Group Training Associations
and Apprenticeship Training Agencies are critical to reducing
the bureaucracy on smaller businesses who wish to offer apprenticeships.
Rebalancing the economy
41. The FSB welcomes the recognition of
imbalances in the UK economy and the fact that only private sector
growth can help to reduce the dependency on the public sector
in some areas of the country. The private sector must be enabled
to drive economic development to assist with the transition and
the inevitable cuts in public sector employment. However the reduction
in dependency on the public sector must be managed carefully so
as not to stifle much needed growth in the private sector. A significant
number of FSB members do business with the public sector and this
will be mirrored across other business organisations. There is
a delicate balance to be struck as spending priorities are addressed.
42. The FSB also urges that attempts at
rebalancing are not seen in overly simplistic geographic terms.
Although public sector dependency is on average higher in certain
regions of the UK such as the North West and North East, it should
not be assumed that other areas will be unaffected if they are
not given similar assistance. For example although the East of
England region is overall well balanced towards the private sector,
areas within it such as Cambridge, South Norfolk and Ipswich have
significantly high levels of public sector employment. Distribution
of spending and measures taken to aid transition such as through
the regional growth fund need to be sophisticated enough to take
account of this.
13 August 2010
6 http://www.communities.gov.uk/newsstories/newsroom/1650030 Back
FSB SME finance research, August 2010; http://www.fsb.org.uk/policy/images/fsb%20banking%20research%20sept%