Mark Prisk MP: Has state support for business bought any gains?

Mark Prisk MP is Shadow Minister for Business and Enterprise.  He is writing after the publication of the Interim Report of the Small Business Task Force.  The Final Report will be published in May.

The level of direct Government support for small business has mushroomed more than five-fold between the early 1980s and the present day.  The expansion has made business support a booming sector in its own right.  However, despite the huge injection of time and money, it is far from clear whether business has benefited. This lack of clarity led me to ask serial entrepreneur, and former Dragons Den panellist, Doug Richard to chair a Task Force investigating the state of business support.

The Task Force’s starting point was to try to build up a coherent picture of existing provision. The sheer complexity of the sector meant this was not a straightforward task.  As a result of ad hoc growth in support schemes, small businesses are overrun by a system of 3,000 schemes run by 2,000 bodies.  The Government has proposed to cut back the number, however, to date has failed to set out a rationale for doing so.   

The number of schemes is dwarfed by the sums of money involved.  A 2004 DTI-backed study, which was based on heavy extrapolation, found that in 2003-04 the Government had set aside £10.3 billion per year for small business support.   But, through in-depth research covering the devolved administrations of Northern Ireland, Scotland and Wales, local authorities’ spending, and updated the figures to reflect policy and budget changes, the Task Force was able to conclude that the total expenditure is in fact now estimated at over £12 billion.  To put that into context, it accounts for just over 2 per cent of all Government expenditure. 

The Report reveals how government has made little or no attempt to measure the impact of its business support schemes. Focusing on the types of programmes in existence, the Task Force asked almost all local authorities in Great Britain, through Freedom Of Information requests, to provide their analysis of the effectiveness of the SME support schemes they operate. Of those that replied, only 34% were analysed in any way, and of these, two-thirds of analysis was based on customer satisfaction surveys which are of questionable value.

The Task Force’s analysis also paid particular attention to the Regional Development Agencies and the Business Link Providers which are intended to be the “prime access channel” for publicly-funded business support.  One of the most striking findings did not concern the programmes but the organisations that administered them.  It was calculated in a basic scenario, for every pound coming from central Government for SME support, at the very least, 33.5 pence is lost to administration, i.e. a third. Therefore, at best, only 66.5 pence feeds directly into SMEs through advice and training or loans and grants.

Finally, the Task Force commissioned detailed research, including a series of 50 economic correlation analyses to assess the overall impact of state business support. No measurable correlation could be found whatsoever.  Thus £12 billion of state money is being spent by Gordon Brown, yet this Government cannot demonstrate what effect it has, if at all.   ConservativeHome.com readers will be encouraged to know that Doug Richard and his colleagues will now be preparing some radical options for a future Conservative Government to consider.