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'SMALL BUSINESS SCHEME A FAILURE'

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Central government spends over£2.6bn a year supporting small business. The Small Business Service (SBS) is respons...
Central government spends over£2.6bn a year supporting small business. The Small Business Service (SBS) is responsible for leading government actions for small business primarily through leading on a government action plan. The SBS has delivered some successful projects itself, but to date it does not have measures to establish its overall impact, or the information it needs from other departments to establish the overall impact of wider government support for small business.

The small business sector is a complex policy area and there are a number of different expressions of the government's intentions for small businesses as demonstrated by the government aims, a PSA objective and three targets and seven strategic themes. In addition, 15 departments have 265 programmes to support small business and government has initiated a process to reduce the total number of programmes supporting small business at all levels of government from 3,000 to 100. This complex framework makes planning and monitoring a cost effective package of interventions difficult.

The government published its Action Plan for small businesses in January 2004. SBS is responsible for monitoring progress against the plan although is not responsible for many of the actions in it. SBS does not receive the information it needs from other departments to assess and report on overall progress. SBS evaluates its own support schemes. None of the evaluations to date has assessed the impact of SBS as a whole, or interpreted its or government's contribution to meeting high-level targets and aims for small businesses.

The NAO looked in more detail at SBS work in four important areas: regulation; access to finance; joining-up government; and advisory services.

Regulation

SBS has helped in the development of new regulations and policies that affect small businesses but its involvement has often been limited because Departments do not involve SBS in a timely manner. SBS has not systematically measured its impact in improving regulations. It is now working with the Better Regulation Executive to reduce the burdens of regulation on business.

Access to finance

SBS has estimated that about 150,000 small businesses have difficulty in raising the external finance they need each year. The main government scheme to help with debt financing - the Small Firms Loan Guarantee - annually helps around 6,000 small businesses access loans and stimulates net increases in employment and turnover. Default rates are almost nine times higher than for commercial lending, but SBS has introduced changes designed to reduce them. Displacement of existing business is also high: we question the extent of the evidence that suggests wider benefits resulting from the extra competition can offset the negative effects displacement has on value for money. Government has also set up a number of funds to fill a gap in the supply of equity funding for small businesses. It is too early to evaluate the impact of these schemes but the number of businesses helped is small.

Joined up action

The preparation of the Government Action Plan, the first time that government policies and actions regarding small business had been brought together, was welcomed by the small business community. Government departments and business organisations the NAO consulted respected SBS expertise in small business issues but stated that SBS may not have the necessary influence over other government departments to ensure delivery of the Action Plan.

Advisory services

The Business Link network which provides advice and guidance for small businesses, and which was managed by SBS until April 2005, has improved the quality and volume of services provided with constant funding - and so is better value now than in 2000. Similarly, the businesslink.gov website which SBS established in 2004 and allows businesses to access all sources of central government advice through one web portal has enjoyed higher volumes than expected and been widely welcomed.

NAO head John Bourn said today:

'Government needs a better appreciation of its impact on small businesses, and simpler performance management arrangements, if it is to achieve its aim - to make the UK the best place in the world to start and grow a business.'

Notes

Latest data, from 2003, showed that of the 3.5 million businesses in England all bar 5,400 were either small (with fewer than 50 employees) or medium-sized (with 50 to 249 employees). Small and medium sized businesses are found in all sectors of the economy and account for half of all business turnover and employ 57 per cent of England's private sector workforce. In 2000, the Department of Trade and Industry established the Small Business Service with the vision to make the United Kingdom the best place in the world to start and grow a business.

Report by the Comptroller and Auditor General

HC 962 2005-2006

24 May 2005

ISBN: 0102937761

Price:£10.75

Full report

Executive summary

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