Memorandum from the Institute of Directors
(IoD)
INQUIRY INTO THE EUROPEAN COMMISSION GREEN
PAPER: ENTREPRENEURSHIP IN EUROPE
Thank you for asking the Institute of Directors
(IoD) to provide evidence to the House of Lords Select Committee
on the European Union (EU) on the above subject. The IoD is a
non-party political organisation with some 55,000 members in the
UK, whose aim is to help directors to fulfil their leadership
responsibilities in creating wealth for the benefit of business
and society as a whole. As a general rule, the IoD does not carry
out extensive research on a sectoral basis, such as for-profit
technology businesses. Instead, IoD research generally focuses
on problems and issues that are common to all businesses, irrespective
of their background. As a consequence, our comments on the two
broad areas of public support for entrepreneurship identified
by the Committee for investigation—access to finance and
financial incentives and policies to support management and work
force skills—may unfortunately seem somewhat impressionistic.
What are the current programmes or schemes in
the UK (EU)?
1. Until recently the UK Government ran
a plethora of schemes to assist businesses of all kinds. The Department
of Trade and Industry (DTI) alone ran 183 different programmes,
59 of which provided grants direct to business. [1]However,
the DTI is currently in the process of reorganising the system
of business support that it runs and so we do not know precisely
how many schemes that it now has in operation. The most well known
programmes run under the auspices of the DTI to provide access
to finance for businesses, including for-profit technology based
businesses, include the Small Firms Loan Guarantee Scheme, the
UK High Technology Fund, Regional Venture Capital Funds, the SMART
scheme and enterprise grants. Financial incentives to promote
investment by for-profit technology based businesses include the
Treasury's Research and Development (R&D) tax credit. At the
EU level schemes include the European Investment Fund (EIF), the
European Investment Bank's European Technology Facility (ETF),
the Commission funded EFT Start-up facility and the Commission's
I-TEC scheme. [2]
2. The UK Government also operates a variety
of schemes to support management and workforce skills. For example,
the Learning and Skills Council (LSC) provides 85 per cent of
the funds to Further Education colleges, finances schemes such
as Work Based Learning for young people and supports employer-based
programmes such as Investors-in-People. [3]Similarly,
the Department for Education and Skills runs the Small Firms Training
Loan scheme, which provides financial support for the cost of
training and which is administered by the banks. [4]Many
of these funding activities are not specifically geared towards
the needs of for-profit technology based businesses but in principle
they are able to benefit from them. With respect to policies supporting
management, the Small Business Service (SBS) has assisted the
Council for Excellence in Management and Leadership to pilot the
Business Improvement Tool for Entrepreneurs (BITE). BITE apparently
helps entrepreneurs to identify development needs and suggests
solutions to some of the problems that entrepreneurs may encounter.
[5]The
UK Government also produced a report last year on some of the
steps that it is taking to support the development of management
skills in the country. [6]
Are the objectives of these programmes well specified?
3. The sheer plethora of schemes that exist
to help businesses almost certainly means that some of them have
similar objectives. For example, the LINK programme and Faraday
Partnerships run by the DTI both help to promote the development
and exploitation of new technologies between research institutions
and enterprises. [7]However,
the IoD is not in a position to give a clear assessment of whether
the objectives for the many different programmes run by the UK
Government or by the EU are well specified.
Do the programmes clearly identify the annual
costs and benefits in each case? What are they?
4. The cost of the various programmes in
the UK to help businesses gain access to finance or to help them
support management and workforce skills can typically be found
in the various annual reports that are produced by their respective
Government departments. The annual reports usually state how many
businesses have taken advantage of the schemes that are in operation,
or how many grants have been awarded under a particular programme.
5. As a general point of interest, a survey
of 504 IoD members in 2002 showed that 17 per cent (86) had approached
the DTI for financial support. Of these, 65 per cent (56) were
successful in their request for financial assistance. Of those
members who received financial help from the DTI, 65 per cent
(36) believed that the assistance made a significant difference
to their business's prospects. [8]However,
it is impossible to know whether the 36 members who received financial
assistance from the DTI and who believed that this help made a
significant difference to their business's prospects had exhausted
all alternative sources of finance.
6. Ultimately, UK Government departments
should only operate schemes that assist for-profit technology
businesses in gaining access to finance if there is a case of
market failure. Clearly it would be irrational for UK Government
departments to finance activities and projects that the private
sector would be prepared to undertake in the absence of Government
support. The same argument applies to policies designed to support
management and work force skills. Similarly, the EU should only
finance schemes of the kind discussed here in case of market failure.
Which, in your view, are the most effective programmes
currently? Why is this?
7. The IoD has not conducted any formal
assessment of the various schemes run by the UK Government or
by the EU to assist for-profit technology businesses. However,
there are a number of general programmes that are important in
their own right and which probably benefit for-profit technology
businesses. Firstly, UK Government support for the science and
engineering infrastructure (for example, money spent on the Patent
Office, the Design Council and the various research councils like
the Economic and Social Research Council) is in the interests
of for-profit technology businesses. Similarly, finance for what
might be called curiosity or "blue-sky" R&D could
be advantageous for these businesses. Discoveries and developments
from "blue-sky" research might produce spill over effects
which for-profit technology businesses can benefit from.
8. Secondly, UK Government measures to increase
the awareness amongst for-profit technology businesses about the
developments that take place as a result of R&D in science
and engineering at home and abroad and to help them take advantage
of new discoveries is probably useful. The DTI operates a number
of programmes to achieve these objectives, including International
Technology Promoters and Faraday Partnerships. Indeed, the general
provision of advice and information to businesses about new techniques,
best practice and product information is useful because research
suggests that small firms that access and use business support
services are more likely to be profitable and survive than those
firms that do not. [9]
9. Thirdly, there are some schemes that
provide financial assistance to businesses that are likely to
be reasonably helpful. For example, the Small Firms Loan Guarantee
Scheme, which provides a guarantee to encourage banks to lend
to businesses that are unable to borrow because they lack collateral
or a track record, has the potential to assist young for-profit
technology businesses. [10]
What improvements to existing programmes, or what
new programmes of support, do you consider desirable and why?
10. The system of business support is complicated.
In addition to the SBS and the 45 Business Links that constitute
the Business Link network, there is the Learning and Skills Council
for England and its 47 subsidiary local Learning and Skills Councils.
There are also eight Regional Development Agencies, plus the London
Development Agency and the Government Offices for the Regions.
This plethora of institutions does not make for a clear system
of business support. Many firms, including for-profit technology
businesses, are probably unsure of which publicly funded institution
they should approach for advice and support. Accordingly, the
existing system of business support should be rationalised.
11. Moreover, there should be a reduction
in the number of business support schemes that are in operation
(as mentioned earlier, the DTI has made a move in this direction).
The aim of policy at both the national and EU level should be
to rationalise the system of programmes to help businesses partly
to simplify the arrangements for firms and partly to ensure that
the surviving schemes can make more of an impact.
Are policies across and within each of the above
areas (ie access to finance and the financial incentives and policies
to support management and work force skills) effectively co-ordinated
by the Government/the European Commission?
12. As indicated previously, both the UK
Government and the EU operate a number of schemes to improve access
to finance for small businesses and this would seem to indicate
that there is scope for better co-ordination in the future.
How appropriate is the existing balance of support,
between each of the broad areas referred to above (ie access to
finance and the financial incentives and policies to support management
and work force skills)?
13. In broad terms, access to finance for
businesses in general in the UK is probably not a problem at the
present time. Moreover, the best way to improve accessibility
of finance for businesses as a whole is to keep the tax burden
and interest rates relatively low. This is because most businesses
use their own resources to finance their operations or do so by
borrowing from the banks at variable rates of interest. Government
and EU schemes to improve access to finance can only ever have
a marginal impact.
14. There is a serious need to improve basic
standards in education in the UK. A fifth of the adult population
is functionally illiterate and innumerate. [11]All
firms, including for-profit technology businesses, would benefit
from having a better educated workforce.
24 April 2003
1 House of Commons Hansard, Written Answers
for 17 December 2001 (London: The Stationery Office, December
2001), column 101. Back
2
Useful information on many of these schemes can be found in Finance
for Small Firms-A Seventh Report Bank of England, January
2000). Back
3
In Demand: Adult Skills in the twenty first Century (Performance
and Innovation Unit report, December 2001), pp 47-48. Back
4
Ibid, p 43. Back
5
Trade and Industry-The Governments Expenditure Plans 2002-03 to
2003-04 (Department of Trade and Industry, June 2002, Cm 5416),
p 92. Back
6
Managers and Leaders: Raising our Game. Government response
to the Report of the Council for Excellence in Management and
Leadership (Department for Education and Skills and Department
of Trade and Industry, 2002). Back
7
For information on the LINK programme and Faraday Partnerships,
see Trade and Industry-The Government's Expenditure Plans 2002-03
to 2003-04, pp 73-75. It is difficult to tell from the written
answer provided by the Secretary of State for Trade and Industry
what the difference is between the Faraday Partnerships and the
LINK projects. See House of Commons Hansard, Written Answers
for 6 February 2002 (London: The Stationery Office, February 2002),
cols 969-70. Back
8
Richard Wilson, The Department of Trade and Industry: past
problems, current difficulties and future objectives (Institute
of Directors, 2002), pp 44-46. Back
9
"New research shows that advice helps businesses succeed",
Department of Trade and Industry press release, 12 October 2001. Back
10
An assessment of the scheme was made four years ago by KPMG. See
An Evaluation of the Small Firm Loan Guarantee Scheme (Department
of Trade and Industry, 1999). Back
11
Improving Literacy and Numeracy-A Fresh Start (Report of
the Working Group chaired by Sir Claus Moser, Department for Education
and Employment, 1999 Ref: CMBSI). See also, Second Report of
the National Skills Task Force. Delivering Skills for all
(Department for Education and Employment, 1999), especially p
23. Back
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