By Daniel Hunter
In the Federation of Small Businesses' (FSB) first budget submission to the new Government, it has called on the Chancellor to strengthen the landscape for small businesses and enterprise by continuing to reduce the deficit, stimulate growth and back ambitious small businesses.
The latest FSB research released this month found positive momentum building for small firms with record levels of revenue, strong investment intentions and increased employment all being reported. Importantly, small business productivity grew by 1.4% year-on-year in Q4 2014, at a time when productivity across the UK as a whole increased by only 0.3%.
To build on these positive developments within the UK’s 5.2 million small firms, the FSB would like to see the Budget address small business concerns in key areas including skills shortages, reforming and simplifying the tax system, helping more businesses export and investing in the UK’s infrastructure.
John Allan, National Chairman for the Federation of Small Businesses, said: “The UK’s small businesses are reporting record high levels of confidence. Unemployment is continuing to drop, UK wage growth is at a four year high and there are encouraging indications that productivity is finally on the rise.
“The Budget is an early opportunity to provide a boost to the increasing positive sentiment, and for the Chancellor to demonstrate his pro-enterprise credentials by again backing small business to deliver the growth and jobs the economy needs. That effort must however begin with a continued focus on reducing the deficit that remains too high for comfort.
“As our submission sets out, further supply-side reforms to boost the UK’s flagging productivity should be the other main area of focus. As well as progressing existing policies, this will require all parts of Government to co-ordinate their efforts and focus on areas such as raising skills in the workforce, simplifying the tax system, encouraging exports and removing barriers to enterprise.
“In doing so it's important that no areas are left behind in this recovery — rebalancing economic activity and raising the performance of those parts of the UK beyond London and the South East must be a priority for this Government. Though improving, our research shows that confidence in some areas lags behind that of others. There is no quick fix to this issue. As is widely recognised, long-term efforts are required to stimulate growth and raise productivity in areas outside of the South East, which is why the FSB has continued to call for investment in infrastructure in these regions to help rebalance growth. The Chancellor must therefore follow through with much-needed infrastructure development across the UK as a whole by enhancing transport links, improving broadband and investing in the Northern Powerhouse.
“By delivering the recommendations set out in our budget submission, the Government can create the right environment for small businesses and enterprises to flourish, making the UK economy one of the most buoyant in the world.”
The Government should widen the scope of reform to radically simplify the tax system and improve incentives to encourage investment as well as research and development. Schemes such as the Seed Enterprise Investment Scheme and Entrepreneurial Relief are having a positive effect in stimulating growth and this momentum in early stage businesses must continue to be supported. The outdated business rates system is another key issue for small businesses and we urge Government to ensure their current review delivers a new, fully reformed system that is flexible, fair, transparent and efficiently administered.
The FSB has long advocated for a high-class system of vocational training which prepares young people for the world of work and delivers increased productivity to businesses and the economy. We fully support the creation of more business-led apprentices, but more needs to be done to promote the message to schools and young people that apprenticeships are an equally valued alternative to academic routes among employers. The Government should continue with its apprenticeship reforms in England, working with employers to create and comprehensively pilot a new funding mechanism that is user friendly and meets the needs of small firms.
The Government’s aspiration of £1 trillion of exports by 2020 has always been an extremely challenging objective, but it is vital we show ambition in this area. Encouragingly, more of our members are reporting that they expect the value of their exports to increase. However the FSB would like to see further improvements so that more start-up businesses are encouraged to export. Given the British Business Bank's role in supporting small business finance and their understanding of the sector, the Government should consider giving it a greater role in delivering export finance which is accessible for small firms.
Long-term infrastructure investment
The UK’s infrastructure has long suffered under-investment and a lack of integration regionally, which has been detrimental to productivity and the balance of growth across the UK. More than ever, what our members will be looking for is a gear shift in ambition and delivery of infrastructure on the ground to provide them with the confidence to compete with the world’s leading economies. There needs to be a clear decision on building new airport capacity in the South East, an upgrade to our heavily relied-upon roads network, more details on HS3 and the introduction of a Universal Service Obligation (USO) for broadband. To help rural businesses, the FSB believe the USO should deliver 10Mpbs minimum, as reiterated by Ofcom, rather than the 5Mbps Government has suggested in their Digital Communications Infrastructure Strategy.
Access to finance
The FSB supports efforts to increase competition in the business banking market, and has welcomed the CMA market investigation into the sector. We call on the Chancellor to improve credit data sharing, consider initiatives such as credit ‘passports’, and ensure there is equal access to the payment system by all market participants. We also ask for a reaffirmation of Government’s long-term commitment to the British Business Bank, which is essential in diversifying the market and keeping it competitive.
The FSB welcomes Government plans to rebalance the economy away from London and the South East. Within the regions of England, Local Enterprise Partnerships (LEPs) will be crucial to support rebalancing. We therefore ask for a short review of LEPs to be conducted to ensure they are in a position to help deliver growth. This would include an assessment of performance to date, improvements required and direction of travel going forwards.
Universities have a leading role to play in stimulating regional economies, and encouraging rebalancing through knowledge transfer to local businesses. This is why we continue to advocate increasing the Higher Education Innovation Funding (HEIF) by £90 million to £250 million. This will also help fund Catapult Centres who are beginning to establish themselves as effective components of the entrepreneurial ecosystem.
To enable growth outside of London and the South East, the government must address the chronic failure to build enough homes. We believe smaller construction firms are key to boosting the supply of new homes, and can do so more quickly than larger developers on strategic sites. The Government should put in place a comprehensive package of measures to encourage small construction firms back into the house building industry. These measures should focus on further planning reforms, better regulation, and improving access to finance.
Leadership and management
Leadership and management in small businesses are often overlooked as a driver of productivity, yet evidence demonstrates this is an area where the UK lags behind its competitors. We would therefore like to see further emphasis on boosting these essential skills. One way this could be achieved is by including a management component in the proposed ‘degree apprenticeships’ and making continued efforts to increase small business use of the expertise offered by business schools through the Small Business Charter.