Playing a supporting role? By Mark Prisk

22 Mar 07
More than £12bn of public funds is spent every year on support for small business but to what effect? A Conservative Party task force found the programmes to be ineffective, bureaucratic and inefficient

23 March 2007

More than £12bn of public funds is spent every year on support for small business – but to what effect? A Conservative Party task force found the programmes to be ineffective, bureaucratic and inefficient

The level of direct government support for small business has mushroomed more than five-fold since the early 1980s.

But, despite the huge injection of time and money from an array of public bodies, it is far from clear whether all this effort is having any impact on business creation and wider economic development. This led me to ask entrepreneur and former Dragons' Den panellist Doug Richard to chair a task force on publicly funded business support.

The starting point was to try to build up a coherent picture of existing provision but this was not a straightforward task. There are around 2,000 organisations in the UK delivering publicly funded support services to small businesses. Central government alone has 267 services housed in 14 different Whitehall departments.

A 2004 study, backed by the Department of Trade and Industry, found that in 2003/04 the government spent £10.3bn per year on small business support. The task force has concluded that total annual spending is now more than £12bn.

This is based on in-depth research covering the devolved administrations of Northern Ireland, Scotland and Wales; local authorities' spending; and updating the 2004 figure to reflect subsequent policy and budget changes. To put that figure into context, it accounts for just over 2% of all government expenditure.

The government has at least acknowledged the complexity of the regime, which consists of around 3,000 direct support schemes, by setting up a Business Support Simplification Programme. The DTI plans to cut the number of schemes to no more than 100 by 2010.

But this has got off to a pretty poor start. Margaret Hodge, the minister for small business, has made it clear that she will not devote resources to compiling a list of existing, or what she calls 'historic', schemes. This is curious, given that many of the thousands of programmes were created under the auspices of the current government.

Furthermore, the task force found that there is little or no measurement of the impact or the outcomes of current programmes by the DTI. When asked, the department said the figures were not available and it was not able to compile them. This suggests that it does not have a grip on its own expenditure.

It is extraordinary that the government spends billions of pounds of public money without being able to demonstrate that it works. It is also difficult to simplify the regime without knowing which, if any, schemes are effective.

The same lack of analysis is evident at the local level. The task force put in Freedom of Information requests to almost all local authorities in Britain, asking them to provide their analyses of the effectiveness of the schemes they operate.

Of those that replied, only 34% conducted an analysis of the services they provided. Of these, two-thirds were based on customer satisfaction surveys, which are of questionable value.

In an attempt to gain evidence, the task force commissioned consultants to examine what impact, if any, this investment is having on economic development.

The main focus of this work was the £2.6bn that the DTI estimates is spent on direct support to businesses. It included a series of 50 economic correlation analyses to assess its impact. No measurable correlation whatsoever was found.

The task force also scrutinised the role of the regional development agencies and the business link providers, which are intended to be the primary means of delivering government support.

One of its most striking findings was the high bureaucratic costs of these bodies. It found that, for every pound passed from central government to the RDAs for business support, at the very least a third is eaten up by administration.

Therefore, at best only 66.5p in every pound feeds directly into the creation of local businesses through loans and grants or advice and training.

Clearly, this interim report highlights serious flaws in the purpose, management and effectiveness of the existing schemes. The task force will deliver its recommendations on how these should be addressed in May.

The existing regime's failure to provide effective support is both a waste of taxpayers' money and a lost opportunity to grow an entrepreneurial economy.

Small businesses are the lifeblood of the economy, and the ultimate economic wellbeing of our country depends on ensuring that the UK is one of the best places in the world to start and run a small business.

To do that, we must radically rethink how the government supports small business, entrepreneurs and innovation.

Mark Prisk MP is Conservative shadow minister for business and enterprise. The interim Richard report on small business and government was published on March 15


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