Member Article

Business on benefits

I am all for supporting businesses that are starting up, need a bit of help, advice and even assistance in times of difficulty.

However, I have to say I’m becoming increasingly concerned about the quality of business support within the UK. For years, this has been rationed out to businesses by way of a mixture of partial grants and loans, free training and other factors. It has been subject to European Union funding regulations for the most part, which have created a bureaucracy with deadlines, audit and performance requirements that are not consistent with the dynamic business environment that many businesses face. It has also been highly restrictive in the types of assistance that can be given.

I am equally concerned about the huge bureaucracies of businesses that administer them. I wrote to one such organisation recently, asking whether they could give the infrastructure cost as a percentage of the public funds given. They refused and indicated that the FOI Act did not apply to them, which of course it doesn’t; and they clearly did not wish to respond on an ethical stewardship basis that they received so much public funding that they might oblige. What was clear was that they lack complete transparency on their administration of public funds, as a private entity supporting business in the UK.

I have real concerns that the cost of providing business support in the UK is disproportionate to that of its administration. Certainly questions need to be asked and a review needs to be undertaken.

This line of thinking has come particularly to a head for me in light of the national disaster that is Growth Vouchers. HMRC randomly popped an invitation to apply for Growth Vouchers into the mailboxes of a number of companies last year. This allocation was based on a totally random basis. It did not weigh in issues of company need, size, growth aspiration, or sustainability; it simply ran on a “lottery” basis. Unsurprisingly, only 10% of the allocation was taken up and when the closing date for Growth Vouchers was re-advertised, this resulted in a flurry of last-minute enquiries that frankly overloaded the system. That said, I do not believe that will amount to 100% uptake by a long chalk.

Organisations administering the vouchers undertook an assessment of the company’s need and if they met the criteria, they were passed on to other providers, who then allocated the vouchers on a random basis. I have had the frustration of working with several companies that were not eligible for these vouchers but needed them, and some that were invited to apply, needed them, spent time and trouble going through the process but ultimately did not receive the support, despite being eligible during the assessment process. Invitation and ultimately allocation appears to have been purely random. The middleman, however, appears to have received £150 for each interview. I know of one at least that took as little as three minutes, probably not their fault in reality, as HMRC created a last minute rush that must have deluged them. This cannot be a sensible use of public funds, which have been allocated to support business.

The business support sector has become a self-serving industry in its own right. We also see repeat contracts going to usual suspect organisations, with poorly publicised tendering processes and, particularly frustrating, contracts awarded to business support organisations that are often out of the areas they serve.

There has to be a better way than this. There must be a way of ensuring business support reaches those that need it, with equanimity and fairness. It starts with a realistic root and branch look to funding streams, providers and their practices. In many cases they’re providing cut-price coaching, business advice and other assistance. This is skewing the market for those that are involved in those provider activities, instead of allowing free-market forces to operate in this respect. We also have an inner sanctum of businesses that seem to be well able to exploit these arrangements and, the potential for exploitation really is there.

Would it not be simpler to look at free market guidelines here? Why not give businesses, new and old, tax breaks when they are going for growth and can satisfy certain criteria. Rather than receive handouts, many small businesses would benefit more from having additional corporation/other tax relief so that they can choose in terms of how they grow and invest in the business.

Some people of course will say that a simple tax relief will not get help to the businesses that do not pay tax and those that save tax will not necessarily deploy it in strategic planning, marketing, training etc. My view is, the free market is pretty much the law of the jungle. Whatever behaviours will support survival and growth, need to be learned by those attempting to survive and grow. Far better this than a form of external artificial life support provided by often self-interested organisations that distribute state handouts, virtually creating a dependant business culture of “business on benefits”.

This ugly manifestation of “benefits Britain” has no place in a modern thriving economy. But the problem is, we have politicians and others praising the importance of small business in this country, proclaiming it to be the backbone of the economy, and yet to what extent is it truly listening to the voice of the smaller enterprise? Enable us to do our job, reduce bureaucracy and regulation. Offer tax relief and, if you must administer money, give businesses what they need, not what the European Union or a bunch of bureaucrats say is allowable. That way, we get a free vibrant market, and businesses have a chance to get off the ground as the authors of their own destiny, rather than benefit recipients from rationing mechanisms that frustrate many and arguably offer a lot less than the free market itself could provide.

David Cliff is Managing Director of Gedanken and Chairman of the Institute of Directors’ Northern Sector Group.

This was posted in Bdaily's Members' News section by David Cliff .