Pre-Budget Report - little help for small businesses

Small business lobby group the Forum of Private Business has labelled the Pre-Budget Report ’a missed opportunity to help smaller businesses’.

Whilst making encouraging sounds on skills training, Gordon Brown failed to deliver reassurances on the UK’s future transport needs. There were no measures to open public procurement procedures up to smaller firms and no promise to end the effects of the Channel Islands VAT loophole. Despite three reports on regulations leading up to the Report, Mr Brown failed to prioritise the need for further cuts to, and simplification of, red tape.

Skills

As Lord Leitch pointed out in his government-commissioned review of skills training, the UK’s skills base remains weaker than those of other developed nations. The FPB believes that the Chancellor made encouraging noises to invest in education and involve business in training, but warned that smaller businesses’ needs must be catered for.

"Current employers and employees need development also. The owner-managers of smaller businesses owners must be actively involved in the training process to use their experience to create a more skilled and efficient workforce", said Nick Goulding, Chief Executive of the FPB.

"Smaller firms employ far more of the private sector workforce than their larger counterparts and, as such, their needs should be prioritised", he added.

The FPB is pointing to the results of its research this week, which revealed that owners of smaller businesses are unhappy with the Government’s approach to training employees. Only 13% of the 100+ small-business owners who responded to the survey felt the current system of skills provision was appropriate.

Many respondents perceived a lack of basic skills in school leavers, with more than 80% rating the literacy and numeracy of school leavers as average or below average.

Mr Brown’s Pre-Budget Report promised investment in further education colleges, but these were unpopular with over 60% of respondents who said that they did not provide for the training demands of their businesses.

Mr Goulding added that more must be done to inform employers of support schemes.

"Many employers are not aware of the support they can receive. The ‘Train to Gain’ scheme that Mr Brown highlighted in his Pre-Budget Report does not seem to be having an impact."

Transport

The FPB is calling for genuine alternatives to be funded by the Chancellor’s promise of further investment in transport infrastructure. That should precede any system of road charging introduced to the country’s busiest routes. Sir Rod Eddington, the Government’s specialist Transport Adviser, delivered his advice to government on the future of Britain’s transport needs ahead of the Pre-Budget Report, endorsing the introduction of a road-charging system.

The FPB, fears that, without workable alternatives to our congested roads, the proposed system will turn into just another tax on smaller firms and their employees.

Nick Goulding said that, at the moment, there is no viable alternative to our overcrowded roads: "Businesses must be able to put significant amounts of freight onto an efficient and cost-effective railway. Employees must have access to quick and cheap public transport."

The FPB welcomed the Chancellor’s incentives to use greener fuels.

Public procurement

The UK Government’s public procurement practices, meanwhile, deny a large commercial market to smaller businesses through bureaucracy and secrecy. Public authorities require unreasonable amounts of paperwork from tendering companies, for which smaller businesses cannot spare the time. Plus, many tenders are simply given to preferred suppliers without being broken out for competition.

Evidence from the United States (US) shows that active breaking out of government contracts saves a huge amount of taxpayers’ money. However, the imposition of percentage targets for smaller-business access to government contracts, which is necessary to enforce the active breaking-out of contracts, is forbidden by the World Trade Organisation (WTO) Agreement on Government Procurement. The US has an opt-out from this agreement, but EU countries do not and the UK Government is blocking moves for the EU to negotiate a revised agreement – an agreement that would be negotiated by EU Trade Commissioner Peter Mandelson.

"It would send a terrible message if moves to increase competition, and save public money at the same time, were to flounder on the obstinacy of the British Government and inaction from Peter Mandelson," concluded Mr Goulding.

VAT loophole

The Channel Islands VAT loophole has arisen due to an anomaly in EU law, whereby goods below a certain value imported from outside the EU can be exempted from VAT. The Channel Islands’ status as crown dependencies puts them outside the EU, leading to the ludicrous practice of large retailers shipping UK-produced goods to the Islands and back in again, VAT-free. The practice undercuts smaller, independent retailers, at an annual cost to the Treasury of £90m. The EU Directive permits the exemption, but only if it does not lead to distortions of competition or tax evasion. The UK Government is in breach of the Directive for continuing to allow the exemption when both are occurring as a result. The FPB has reported this to the European Commission.

Red tape

The FPB is concerned that not enough is being done to free smaller businesses from red tape. A succession of government reports published in the build-up to Mr Brown’s Pre-Budget Report do not go far enough to stem the tide of regulation for smaller businesses. Mr Goulding, criticised all three publications for not going far enough.

"These reports are a clear indication that the regulatory situation is unacceptable. From government bodies over-implementing EU directives to regulators being heavy-handed in their enforcement, we clearly need to see an overhaul of regulation in the UK."