Mark Prisk MP: More Labour failure of small businesses

Mark Prisk MP is Shadow Minister for Business and Enterprise writing on the Interim Report of the Small Business Task Force.  The full report can be found here.

There are wide variances in local economies.  Labour has set up Regional Development Agencies to tackle this, but their performance has been called in to question.  That’s why the Small Business Task Force decided to look carefully at the RDAs to establish whether they are working.  The result was not encouraging. 

In every region there are a least six delivery organisations running independent schemes ranging from local authorities to the Regional Development Agencies (RDAs).  A survey by the Federation of Small Business reported a combination of low awareness levels and confusion about Government initiatives.  Over a quarter of businesses were not aware of the major small business support schemes available to them, and a further 15% were aware of them but found them confusing.  In direct contrast, the satisfaction rates for private sector advisers such as accountants reveal that 57% were satisfied compared with 9% of those using Government support services. 

To assess individual performance, the Task Force used the Freedom of Information Act to ask each of the nine RDAs to provide all documents evaluating the effectiveness of schemes operated by them.  The quality of responses varied.

In some cases, for example the Southwest RDA, it was clear which of its schemes had been evaluated, and which had not.  At the other end of the scale, the Northwest RDA wrote to the Task Force in late November 2006 and said that it could provide no analysis of the effectiveness of any of the 21 schemes it operated in 2005-06. 

In several cases, rather than provide analysis of the effectiveness of every scheme operated, RDAs sent the Task Force documents reviewing the overall structure of their business support services.  Yorkshire Forward’s Business Support Review for example, examined the cumulative impact of all 120 schemes it operates.   In this case, effectiveness was measured by looking at changes in VAT registrations and Gross Value Added in the region as a whole.  But no evidence was forwarded to demonstrate any correlation between the RDA’s activity and the general economic activity in the region. 

So in the absence of consistent evidence from the RDAs, the Task Force tried to examine its macro-economic effect. The main focus of this analysis was the £2.6 billion that the DTI estimated it spent through RDAs, Business Links and LSCs.  The Task Force ran over 50 correlations to establish the impact of Government support across a range of regional indicators including entrepreneurial activity, business registration, or growth in self-employment per region.  These revealed no positive correlation between direct support per firm and entrepreneurial activity, business registration or growth in self-employment per region. 

Perhaps most concerning, the Task Force found that for every £100 intended for business support, at best just £66.50 actually reaches business.  Red tape swallows up the rest. 

So what does all this mean?  First it shows that government is spending billions of pounds, but cannot – or will not – provide evidence of its benefits.  Second, whilst individual scheme may help some firms, independent analysis shows little or no correlation between the money spent and any significant economic improvement. 

No wonder small firms are questioning the value of RDAs.  If we’re going to make the UK the best place to do business, we’re going to have reform this bloated, undirected sector.

Related link: 'Has state support for business bought any gains?' asks Mark Prisk MP