Written evidence submitted by the Federation
of Small Businesses
The Federation of Small Businesses (FSB) welcomes the opportunity
to respond to the above named consultation.
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 210,000 members, it is also the largest organisation
representing micro and small 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 workforce.
The FSB welcomes the Government's commitments to making work pay.
However, it is important to stress the uncertainty of the current
climate. In order for the Universal Credit model to work in the
way it is intended, Government must create the right environment
to encourage jobs growth.
The FSB also urges the Government to look at this area as a long
term project as the benefits of work incentives and changing the
whole benefits system will not produce immediate results.
As you will see below our response is divided into two parts,
creating the right environment to enable jobs growth and getting
people back into work.
We trust that you will find our comments helpful and that they
will be taken into consideration.
CREATING THE
RIGHT ENVIRONMENT
TO ENABLE
JOBS GROWTH
Reducing regulation
1. The complication of complying with numerous and in many cases
disproportionate and expensive regulation acts as a disincentive
for those wanting to expand their business. National Audit Office
research has indicated that the constant flow and changes to regulations
are the most burdensome aspect. In 2011 there will be substantial
additional employment regulatory changes which will act as a further
barrier to hiring staff. The forthcoming regulations include:
Changes to Additional Paternity Leave, the introduction of the
Agency Workers Directive, the phasing out of the Default Retirement
Age and the introduction of Time to Train.
2. Regulation is a hidden tax on business. FSB research suggests
that one third of small businesses still rate regulation as the
greatest barrier that their business faces only behind cash flow
problems and the recession. Previous Governments have failed to
make the tangible reduction in regulation that firms require.
3. The FSB calls for the suspension of the introduction of any
new regulation that negatively affects business over the next
two years. We are also aware that there have been significant
cuts made to Government budgets for advertising regulatory changes,
making it even more difficult for small firms to find out how
new regulation affects them. To further ease the regulatory burden,
the FSB calls for mandatory common commencement dates for all
UK regulation and mandatory post implementation reviews of all
regulation affecting business - both stock and new. The FSB also
calls for reform of the Local Better Regulation Office.
4. The FSB reminds the Government that all regulation should comply
with the Hampton principles of better regulation. The Hampton
Review[208] produced
principles of good regulation: consistency, transparency, proportionality,
accountability, and targeted actions and measures. These should
be consistently applied throughout the regulatory system. The
FSB is concerned that these principles are not being upheld.
5. It is also important to mention that the introduction of the
Universal Credit must not result in any additional burden for
the employer. The FSB is particularly concerned that small businesses
may have their time wasted by interviewing jobseekers who do not
meet the job requirements and who are simply following a procedure
in order to claim benefits.
Driving forward growth
6. It is the UK's 4.8 million small firms that are critical to
a private sector led recovery as they will boost tax revenues
and employ the unemployed. The FSB suggests that in the short-term
(within the next two years) the Government should expand the current
National Insurance holiday scheme to existing micro businesses
and that (as mentioned above) it must place a moratorium on the
introduction of business regulation.
7. Under the FSB's plans, businesses that have between zero and
four members of staff would pay no employer NICs on the first,
or next three employees it hires up to the first £5,000 in
NICS liabilities. The relief would apply up to the Upper Earnings
Limit of £844 a week per employee, or about £44,000
a year. The scheme would last as long as the current Government
scheme.
8. Three new employees, on an average weekly salary of £489
(ONS Annual Survey of Hours and Earnings 2009) would save a small
business £7,567.86 in one financial year under this proposal.
This is an individual saving per employee of £2,522.62 in
one financial year to the business.
9. The Treasury would benefit from the creation of new jobs and
the income tax and employees NICs during the same period. For
example, one employee at an average weekly salary of £489
would still contribute £5,958.48 per annum. For three employees
this would generate £17,875.41 for the Treasury or an additional
£10,307.55 (once the relief has been removed).
10. It is also imperative that by the end of the Parliament the
Government creates more competition in the banking sector, be
that through helping smaller banks get a foothold within the UK
branch network, providing alternative sources of finance for small
businesses to become 'investment ready' and simplifying the process
of accessing state funded venture capital funds.[209]
11. An FSB commissioned report by the Centre for Economics and
Business Research shows that increasing the VAT threshold to £90,000,
from the current rate of £70,000, could save up to £162
million per year from the reduction in red tape surrounding VAT
compliance, as well as saving just over £700 million in VAT
payments. This money could then be used to create up to 35,000
jobs if on an average wage.[210]
The increase in the threshold would benefit small businesses that
will be adversely impacted by the impending VAT increase to 20%.
Encouraging self-employment
12. In the third quarter of 2010 there were 29.19 million employed
people and 2.45 million unemployed people in the UK. During this
period self-employment reached a record high of 4.03 million.[211]
The global economic crisis has had a significant impact on the
private sector, resulting in hefty cost-cutting measures in businesses
of all sizes. The Government has also begun to reduce public sector
headcount to help balance the deficit. The number of people in
public sector employment was 6.05 million in June 2010, down 22,000
from March 2010.[212]
This number is likely to increase significantly.
13. The self-employed contribute £21 billion in added value
to the UK's GDP every year[213]
and have proven themselves in adapting and adjusting to changes
in the market place. With 18 unemployed people chasing every job
vacancy[214] and the
spotlight solely on securing employment, there has been much less
focus on the contribution self-employment can make to the UK economy.
This must change in order to guarantee a new wave of long-term
economic growth.
14. An international workforce survey found that the economic
downturn had resulted in a growing trend toward self-employment
and entrepreneurialism. The Kelly Global Workforce Index, found
that the rise of the self-employed was most pronounced in North
America, with 26% identifying themselves in this category, compared
with 19% in Asia Pacific, and 17% in Europe.[215]
As the economy struggles, self-employment is likely to increase.
Government must now create a permanent infrastructure where these
increases are no longer countercyclical.
Skills
15. The FSB welcomes the extra investment in apprenticeships.
It is vital that small businesses, particularly micro-businesses,
receive assistance from government to provide an apprenticeship
to increase the growth potential within their business. Small
businesses struggle with the bureaucracy of taking on an apprentice
which is why we are calling for a greater nationwide focus on
Apprenticeship Training Agencies (ATAs). These agencies would
employ the apprentice and deal with matters such as sourcing training
and administrative issues surrounding Employer Compulsory Liability
Insurance. An example of an ATA is the London Apprenticeship Company,
a self financed organisation, which a business will simply pay
a flat fee too. The fee will include carrying out all of the bureaucracy
of placing an apprentice and sourcing the relevant training.[216]
16. The FSB is also calling on Government to invest in Leadership
and Management Skills for the smallest businesses as often the
limit is set at a business with at least five employees. By lowering
the threshold to enable businesses, including sole traders, to
co-fund leadership and management training we will see an increase
in businesses looking to expand their staffing levels.
GETTING PEOPLE
BACK INTO
WORK
There must be cultural change at Civil Servant
level
17. This is essential to ensure the reforms are delivered in the
manner in which they are intended. Currently, Jobseekers Allowance
claimants need to demonstrate that they are "actively looking
for work" and a claimant can be refused benefits if they
refuse a "reasonable" job offer. It is important to
look at how these rules are interpreted in practice. For example,
reading advertisements in the paper currently counts as one of
the activities to demonstrate "looking for work". It
is also essential to define what is deemed to be a "reasonable"
job offer - currently for the first 13 weeks of a claim there
is more or less total freedom to turn down jobs, even if the person
has claimed benefits many times before.
Flexible working
18. Small businesses offer flexibility and are generally the happiest
places to work, as shown by a recent survey by the Trades Union
Congress.[217] The
FSB-ICM annual "Voice of Small Business" survey in 2009
showed that 47% of small businesses have staff who work part-time,
29% have staff that work flexible hours and 27% have staff who
work from home. However, the formality of numerous right-to-request
applications is anathema to small businesses. What the statutory
requirements have failed to do is open up the number of jobs available
and advertised as being flexible from day one. In a survey of
lone parents in December 2008, Ingeus found that the lack of availability
of part-time and flexible work was the most frequently mentioned
stumbling block for people trying to return to work.
19. The FSB strongly opposes further formalisation of the process
and urges the Government to recognise the informal approach that
small businesses take to flexible working requests from their
employees.
20. The Labour Force survey has shown that small businesses have
more part-time posts as a proportion of their workforce than do
the largest businesses. However, as these businesses are the least
likely to advertise and recruit formally for jobs, their vacancies
are often not seen by people seeking part-time work. In its report
Flexible Working: Small Business Solutions, the FSB recommended
that Jobcentre Small Business Recruitment Helpline must help businesses
design part-time and flexible jobs that suit their needs.[218]
Childcare
21. A survey by the National Childbirth Trust showed that by far
the biggest concern for women returning to work (60%) was childcare.
Finding excellent-quality, affordable and flexible childcare is
a major hurdle for parents returning to work. Parents who are
happy with their childcare are more likely to return to work and
be more productive when they are in work.
22. The previous Government responded to some of these problems
with the current entitlement for all three-to-four-year-olds to
receive 12.5 hours of free early education for 38 weeks of the
year until they reach compulsory school age - rising to 15 hours
per week from September 2010; however, there are problems with
how this system is funded. With increased wage costs, curriculum
demands and staffing regulations, nurseries see ever-rising costs
that locally devised funding formulas fail to meet. Many nurseries
provide the free hours at a direct loss to their business.
23. The loss of private, voluntary and independent (PVI) nurseries
only exacerbates the lack of choice and flexibility for parents
in childcare provision. Underfunding free entitlement either pushes
costs onto other children, or affects the overall quality of the
childcare provided.
24. At the same time the free hours are aimed at certain age groups.
For many parents contemplating returning to work after maternity
leave, the costs they face for childcare in the first year of
work are significantly higher. Furthermore, the cost of having
a second child in care can make the decision to return to work
economically unviable for a family.
25. In 2007-08 up to £10.5 billion[219]
in income-related benefits went unclaimed in Britain. The FSB
believes that this needs to be better directed to ensure that
parents can choose the childcare they want and that nurseries
are fully funded to play their part in government initiatives.
26. The FSB's report, Flexible Working: Small Business Solutions,
made some recommendations to help solve the problem.
27. Create a childcare bond: The average cost of childcare
for a pre-school child in the UK is £152 a week. But this
is subject to huge regional variation and costs also vary depending
on the age of the child and the type of care received.
28. As regards the free hours already provided by the state for
certain age groups, the FSB believes that, rather than an hourly
entitlement, parents of children of these age groups should be
given a voucher that has a set monetary value. The childcare provider
can then decide what that voucher entitles the parent to. For
some providers it may cover 15 hours; for others it may cover
more or less time.
29. There are also differences between types of childcare. Bond
allocation should vary regionally to allow for this discrepancy.
This should be reviewed annually to match the findings of the
Daycare Trust's childcare costs survey and rises in the National
Minimum Wage.
30. Changing how Child Benefit or its replacement is
paid: Parents should have the option of taking this benefit
as a childcare bond and the amount should not decline with the
birth of subsequent children. There could be more money allocated
for a childcare bond if the funds previously allocated for the
now scrapped Child Trust Fund and any unclaimed income-related
benefits were diverted to the new bond.
31. The FSB believes that giving incentives to parents to invest
their bonds in childcare will enable more parents to return to
work and move off benefits.
32. Helping employers continue to support childcare: It
is vital that the Government continue to support childcare vouchers
available through employers. Small businesses should be encouraged
to take up childcare voucher schemes as they are the employers
least able to come to other beneficial childcare arrangements
for their employees. Government portals should have clear guidance
on how to join a scheme and on the benefits for parents and employers.
IT ISSUES
33. We welcome the Government's commitment to calculate and deliver
electronic payment of the Universal Credit, automatically adjusting
credit payments according to monthly income reported through an
upgraded version of the PAYE system.
34. In our response to the Government's consultation on welfare
reform we noted that previous Government IT projects had not always
been delivered to time and budget and in many cases need further
work. It is with this in mind, that we suggest that a full audit
must be made externally into all IT based Government projects
in each of the last six years. This would establish, which, if
any, contracts were delivered on time and to budget, those that
required further work and cost in excess of original contract,
those that required contract resubmission, further investment
or in particular reworking to effect delivery and to make sure
that those involved in supervision, audit and delivery be held
to account. We feel that this principle must be established ahead
of any further roll out of Government IT projects.
December 2010
208 Philip Hampton, Reducing administrative burdens:
effective inspection and enforcement, HM Treasury 2005. Back
209
FSB press release, November 2010. Autumn Statement must set
a long-term growth strategy for small businesses http://www.fsb.org.uk/News.aspx?loc=pressroom&rec=6781
Back
210
FSB press release, December 2010. Increase in VAT thresholds
could create up to 35,000 jobs in small firms
http://www.fsb.org.uk/News.aspx?loc=pressroom&rec=6799
Back
211
Labour Market Statistics, November 2010 http://www.statistics.gov.uk/pdfdir/lmsuk1110.pdf
Back
212
As above Back
213
According to figures by Oxford Economics compiled for PCG in 2009. Back
214
Totaljobs survey, November 2010 http://www.birminghampost.net/birmingham-business/birmingham-business-news/other-uk-business/2010/11/09/18-people-chasing-every-job-vacancy-65233-27631938/ Back
215
Kelly Global Workforce Index, May 2010 http://www.marketwire.com/press-release/New-Wave-Independent-Self-Employed-Free-Agents-Emerging-Around-World-Kelly-International-NASDAQ-KELYA-1160326.htm Back
216
http://www.londonapprenticeship.co.uk/employers/our-services Back
217
http://www.freshbusinessthinking.com/news.php?CID=&NID=931&Title=Happiest+Employees+Work+For+Small+Businesses Back
218
Flexible Working: Small Business Solutions, June 2010.
http://www.fsb.org.uk/frontpage/assets/fsb%20flexible%20working%20report%20web.pdf Back
219
BBC News article, June 2009 http://news.bbc.co.uk/1/hi/business/8118478.stm Back
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