Documents considered by the Committee on 23 March - European Scrutiny Committee Contents

6   Review of Small Business Act



COM(11) 78

Commission Communication: Review of the Small Business Act for Europe

Legal base
Document originated23 February 2011
Deposited in Parliament4 March 2011
DepartmentBusiness, Innovation and Skills
Basis of considerationEM of 21 March 2011
Previous Committee ReportNone, but see footnotes
To be discussed in CouncilSee para 6.21
Committee's assessmentPolitically important
Committee's decisionCleared


6.1  In September 2008, our predecessors drew to the attention of the House a Commission Communication[33] (Think Small First: A "Small Business Act" for Europe), which endeavoured to create a new policy framework for small and medium-sized enterprises (SMEs) by establishing the "think small first" principle in SME policy-making at EU and Member State level, and by setting ten broad policy objectives. The Commission has now sought in the current document to take stock of the implementation of the Act during its first two years; to set out new actions to respond to the challenges resulting from the economic crisis; and to propose ways of improving the uptake and implementation of the Act.

The current document


6.2  The Commission says that the principles in its previous Communication were fully endorsed by the European Council in December 2008, with both the Commission and Member States committing themselves to the necessary measures, structured around three main areas — ensuring access to finance, taking full advantage of the Single Market, and smart regulation.

Progress by the Commission

6.3  The Commission says that, with the exception of a draft Regulation providing for a Statute for a European Private Company, all the legislative initiatives in the Act have been adopted, including those on e-invoicing and combating late payments. In addition, the EU has taken an increasing role on access to finance (through measures within the Competitiveness and Innovation Framework Programme, the setting up of a permanent SME Finance Forum, and a relaxation of State Aid rules to allow additional aid for SMEs); whilst entrepreneurship has taken its place in the new innovation and research policy (with new financial instruments for start-ups, affordable intellectual property rights, and strategic use of procurement budgets), the Cohesion Policy and European Agricultural Fund for Rural Development (EAFRD) having been identified as key to achieving practical action on the ground.

Developments in the Member States

6.4  The Commission comments that, whilst all Member States have acknowledged the importance of rapidly implementing the Small Business Act, the results achieved vary considerably. In particular, it notes that:

  • not all Member States have effectively reduced administrative burdens, or integrated the SME test into national decision making;
  • whilst most Member States have enhanced SMEs' access to finance (especially bank lending), a stronger approach is warranted;
  • only a few Member States have started to promote the European Code of Best Practices to facilitate SME access to public procurement;
  • there has been no progress in simplifying bankruptcy procedures;
  • Member States are, however, making good progress in making it easier to start up a company.

Need for further action

6.5  The Commission says that, although it remains important to implement the Act fully, the new challenges which have emerged as a result of the changed economic circumstances make it essential to look further. It has therefore identified a number of areas for new action — including making smart regulation a reality for SMEs; paying specific attention to their financing needs; taking a broad-based approach to enhancing SMEs' market access; helping SMEs to contribute to a resource-efficient economy; and promoting entrepreneurship, job creation and inclusive growth — with the proviso that, to be effective, these steps must be based on strong SME governance.


Smart regulation

6.6  The Commission says that the core principle of the Small
Business Act implies a simplification of the regulatory and administrative environment in which SMEs operate, and that there is scope for making its application more systematic based on the EU Smart Regulation[34] agenda. It adds that it will ensure that SME expertise is fully available when assessing the impact of new proposals, whilst taking into account differences in the size of enterprises, where relevant; promote across the EU the application of the "once only" principle, whereby public authorities and administrative bodies should not request the same information, data, documents or certificates which have already been made available to them; simplify the EU accounting network by revising the basic requirements for annual and consolidated accounts of limited liability companies; explore in line with the Smart Regulation Communication the possibility of reducing "gold plating" by Member States; carry out "fitness checks" in order to assess whether the regulatory framework for a policy area is fit for purpose (and, if not, what should be improved); and carry out Single Market "performance checks" in order to identify and, as appropriate, remedy difficulties arising from the interaction of simultaneously applicable pieces of EU legislation to the service sector.

6.7  In addition, it invites Member States to systematically assess the impact of legislation using an "SME test", while taking into account differences in the size of enterprises, where relevant; present each year a forward planning of business related legislation which will enter into force in the next budgetary period; and apply the "Think Small First" principle, not only to legislation, but also to administrative procedures affecting SMEs.

SMEs financing needs

6.8  The Commission observes that, due to the financial crisis, many SMEs have seen their financial situation and credit worthiness deteriorate, and that new initiatives are needed to improve their access to finance at a time when several European banks have tightened their credit standards. It says that it will, within a streamlined and enhanced set of financial instruments, aim to help a higher number of beneficiary SMEs through strengthened loan guarantee schemes to support investment, growth, innovation and research; make EU funding programmes more accessible to SMEs by further simplifying procedures; adopt in 2011 an action plan for improving SMEs' access to finance, including venture capital markets, as well as targeted measures aimed at making investors more aware of the opportunities offered by SMEs; consider adopting a new legislative regime to ensure by 2012 that venture capital funds established in any Member State can function and invest freely in the EU; and explore options for setting up an intellectual property rights valorisation instrument at the European level, in particular to ease SMEs' access to the knowledge market.

6.9  In addition, it invites Member States to facilitate SMEs' access to the Structural Funds by allowing them to submit only once all data necessary for approval; develop "credit ombudsman"-type solutions to facilitate further the dialogue between SMEs and credit institutions; ensure that inconsistencies in tax treatment do not lead to double taxation which could hamper cross-border venture capital investment; and create one-stop-shops where SMEs can apply for European, national and local grants.

Enhancing market access for SMEs

6.10  The Commission notes the emphasis which the Small Business Act places on encouraging SMEs to benefit from the Single Market, and says that it will carry out an in-depth analysis of unfair commercial practices in the EU, and table a legislative proposal, if needed; present tax initiatives[35] aimed notably at reducing tax obstacles and administrative burdens for SMEs in the Single Market; undertake a revision of the European standardisation system in 2011; prepare a guidance document explaining the rules on labelling of origin, and inform SMEs of the means available to them to protect their legitimate interests; propose a European Contract Law instrument responding to the needs of SMEs seeking to enter new markets; and set up a uniform procedure to facilitate cross-border debt recovery by enabling a creditor to preserve money held by his debtor in a bank account in another Member State.

6.11  The Commission says that it will itself (and will invite Member States to) seek to enhance electronic operability in the Internal Market, in particular delivering on the proposal in the Single Market Act for a decision by 2012 to ensure mutual recognition of e-identification and e-authentication across the EU and the revision in 2011 of the Directive on electronic signatures. It will also invite Member States to fully implement the European Code of Best Practices facilitating SMEs' access to public procurement; and promote the online publication of easily accessible and free-of-charge abstracts of European standards, with a clear indication of changes made wherever standards are revised.

6.12  As regards globalised markets, the Commission says that it will present in 2011 a new strategy on the support of SMEs in markets outside the EU, and a strategy for globally competitive clusters and networks with a specific focus on analysing the role played by them in improving SMEs' competitiveness; address problems of SMEs with regard to the use of EU Trade Defence Instruments by increasing information on, and assistance in, using these instruments; pursue systematic efforts to eliminate non-tariff barriers in Free Trade Agreements, facilitate SMEs' access to third country markets, and help enforce Intellectual Property rights. In addition, it invites Member States to provide support to SME network-building, in accordance with EU State Aid and competition rules; and to encourage SMEs to hire (or buy in) specialist expertise in order to help companies grow, innovate or go international.

SME contribution towards a resource-efficient economy

6.13  The Commission says that it will set up a specific framework to allow SMEs to take up the challenge of a resource-efficient economy and to reap the potential, and that it will in particular implement the new Energy Efficiency Plan, and move towards an Eco-Innovation Action Plan which pays special attention to SMEs in promoting networking, low carbon technologies and resource efficient innovation; further develop the specific action on environmental and energy aspects within the Enterprise Europe Network, whereby specific knowledge transfer on state of the art methodologies and best practices will be transferred from regions with advanced experience to those lagging behind; use the Enterprise Europe Network to support SMEs in marketing products and services resulting from best practices, in particular low carbon technologies; and use SME Panels and the SME feedback database of the Enterprise Europe Network to help improve the quality of environment legislation, including its implementation.

6.14  In addition, it invites Member States to make better use of State Aid to support investment in the environment and energy fields; help SMEs to acquire the necessary managerial and technical skills to adapt their business towards the low carbon, resource efficient economy, inter alia through the European Social Fund; and provide regulatory incentives to SMEs registered with the Eco-Management and Audit Scheme (EMAS), and to encourage micro and small enterprises to take advantage of simplified EMAS-type schemes.

Promoting entrepreneurship

6.15  The Commission says that SMEs are the leading job creators in the EU, but that, in order to avoid business failures, it is necessary to improve framework conditions, to assess future skills needs, and to remove barriers for entrepreneurs. It says that it will create mentoring schemes for female entrepreneurs in at least ten EU countries to provide advice and support with the start up, functioning and growth of their enterprises; identify best practices to support business transfers and launch a campaign to promote these practices; and adopt by the end of 2011 a Social Business Initiative focusing on enterprises pursuing social objectives. It also invites Member States to implement the recommendation in the Small Business Act Action Plan to reduce the start-up time for new enterprises to three working days and the cost to €100 by 2012, reduce to one month by the end of 2013 the time needed to obtain licences and permits to take up and perform the specific activity of an enterprise; implement the corresponding recommendation to promote second chances for entrepreneurs by limiting to a maximum of three years by 2013 the discharge time and debt settlement for an honest entrepreneur after bankruptcy; and develop user-friendly and widely supported marketplaces and databases for transferrable businesses, and provide training and support to increase the number of successful business transfers, including communication campaigns to raise awareness of the need for early preparation of business transfers.

Strengthening the governance of the Act

6.16  The Commission says that strong governance is the key to successful implementation of the Small Business Act, and that it will collect information on Member States' actions and issue annual reports on their competitiveness. More specifically, it will set up a Small Business Act Advisory Group comprising representatives of governments and business organisations to help evaluate and report on the uptake of the Act, to step up efforts to disseminate widely information on SME policy actions and promote the exchange of good practice (and further develop the SME Performance Review); and propose the launching of an annual SME Assembly, closely linked to the Small Business Act good practices conference in order to mobilise all relevant stakeholders in the implementation of the Act and to foster dialogue between them. It will also invite Member States (and, where relevant, regional and local authorities) to set up, in coordination with representatives of business organisations, national and local Small Business Act implementation plans, backed up by a strong monitoring mechanism as well as a body in charge of coordinating SME issues across different administrations, provided with adequate human resources and having a high standing within the administration itself.

6.17  The Communication concludes by indicating the progress of individual Member States in implementing the ten principles set out in the Small Business Act.

The Government's view

6.18  In his Explanatory Memorandum of 21 March 2011, the Minister for Business and Enterprise at the Department for Business, Innovation and Skills (Mr Mark Prisk) says that the broad thrust of the review is in line with UK enterprise policy, and he notes that the UK features strongly in the examples given of good progress (and is well-placed in terms of proposed new measures for Member States, which largely match existing Government activity to boost enterprise and SME growth).

6.19  The Minister then says that the UK has consistently called for a continued focus on the priorities agreed in 2008, and that this is, on the whole, reflected in the current review. However, the Government believes that the Communication paints an overly positive picture of the Commission's implementation on reducing regulatory burdens, and that the proposals for future action in this area lack ambition. (For example, although the Commission states that it has begun to use an "SME Test" in its Impact Assessment, the evidence indicates that only three such tests have been completed since the Act was introduced, and that SMEs were only mentioned in 5% of Impact Assessments.) In particular, the Government believes that the SME Test should be strengthened by reversing the burden of proof, so that SMEs are assumed to be exempt from new EU regulations unless policy makers provide a quantified and compelling case for their inclusion.

6.20  The Minister also says that the Government's objective will be to secure Council conclusions which deliver a strong message on the need to focus on better implementation and more transparent monitoring, at Member State and Commission level. It also intends to give further consideration to the Commission's proposals for enhancing governance of the Small Business Act, with a view to ensuring that these are effective and proportionate, and to call for greater ambition on the better regulation agenda. Finally, he says that, as many of measures outlined in the Review have been proposed in previous Commission Communications,[36] it will be important to ensure consistency between the various policy statements and that conclusions do not prejudice forthcoming negotiations in areas such as the Single Market Act.

6.21  The Minister says that the Communication will be discussed at an informal meeting on 12-13 April, and that Council Conclusions are expected to be negotiated during the Hungarian Presidency.


6.22  Although this is a wide-ranging document, it is essentially a review of progress so far in implementing the Small Business Act, and does not contain any new proposals or seek to draw policy conclusions. Consequently, whilst we are drawing it to the attention of the House, we see no need to hold it under scrutiny, and we are therefore clearing it.

33   (29791) 11262/08: see HC 16-xxix (2007-08), chapter 8 (10 September 2008). Back

34   (32067) 14421/10: see HC 428-ix (2010-11), chapter 11 (24 November 2010). Back

35   Such as a Common Consolidated Corporate Tax Base. Back

36   Such as the Innovation Union and Smart Regulation. Back

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