The enterprise agenda: new ideas, continuing concern

This fourth article in a series on policy options in the run up to the general election examines enterprise and the small business sector, concentrating on how big businesses are being asked to help.

Step back in time to the early 1980s. The big issue for the growing number of community affairs managers was rising unemployment. Pilkington has started the St Helen’s Community Trust in 1978 and the first full enterprise agency, LEntA, began in London the following year. The 1979 election campaign slogan “Labour isn’t working” summarised the Conservatives’ promise to be better at managing the economy, but the jobless total rose to more than three million, amid widespread concern about social breakdown.

The solution was to be “enterprise”, with the unemployed using redundancy pay-offs to start small businesses. The network of enterprise agencies spread across the country. Companies donated big sums to match central and local government funding, and the banks, in particular, seconded many employees to help staff them.

Evolving enterprise

Fifteen years on, unemployment is still high: 2.3 million in spring 1996, with a further 1.1 million who want and are able to work but who are not registered usually because they think suitable jobs are not available. The enterprise movement itself has matured:

the government’s emphasis is no longer on new ‘micro’ businesses but on SMEs with growth potential;

new bodies are operating, such as training and enterprise councils in England and Wales (local enterprise companies in Scotland) and Business Links in England (Business Shops in Scotland and Business Connect in Wales);

in response, at local level some enterprise agencies have evolved a successful strategic role like LEntA in London and Project NorthEast in Newcastle, while others deliver services more or less comfortably along side the other service providers in the TECs, Business Links and chambers of commerce;

myriad urban regeneration schemes have come and gone, urban development corporations, task forces, City Challenge and now the SRB Challenge Fund.

Corporate community involvement programmes have broadened out, now with strong education and environment themes. But still most large companies recognise the support they can give to fostering enterprise, as much in their own interests as the wider community. The features of this support now include:

fewer staff on longer term secondment, but more short term staff development and training opportunities;

the emphasis of corporate contribution less on money and more in-kind, such as advice, facilities and other resources;

a focus on mainstream business operations support small enterprises, for example through purchasing, partnership sourcing and bill payment policies.

Growing numbers

There were an estimated 3.7 million active businesses in the UK at the end of 1994, up from 2.4 million in 1979 (DTI Statistical Bulletin, 18 July 1996). Firm with fewer than 250 employees account for 61% of all non-governmental employment and 54% of turnover:

around 2.5 million are sole traders or partners without employees, generating 12% of non-government employment (micro);

1.2m businesses have less than 50 employees (small);

26,000 have between 50 and 249 employees (medium);

just 6,000 have 250 or more employees (large).

The strongest small business sectors are agriculture, real estate, leisure, computing, road transport and other services.

Conservative policy

The present government published in June a comprehensive round-up of its various enterprise initiatives, in the form of the third white paper, Competitiveness: creating the enterprise centre of Europe. Indeed the Prime Minister will make his general election pitch on this theme of ‘enterprise centre of Europe’, claiming 15 years of progress in reversing a century of relative economic decline (and warning that Labour’s ‘stakeholder’ approach smacks of Brussels inspired old-style corporatism).

The government has declared five objectives in small firm policy:

economic stability so business can plan and invest with confidence;

world class education and training, for skills and flexibility in the workforce;

a reduced public sector, allowing lower rates of corporate tax for small companies and stronger incentives;

freer markets through deregulation, labour market flexibility and increased competition;

practical pro-active assistance to firms.

Large companies are exhorted to get involved by:

providing board members for TECs and the new Business Links which concentrate on firms with growth potential employing 10 or more staff;

supporting education at all levels, from teacher placements, work experience and resource materials in schools through to funding research at universities;

investing in the skills of staff, especially through the Investors in People standard, and offering training places, through the Modern Apprenticeship scheme, to be relaunched as National Traineeships in the autumn;

joining local urban regeneration schemes, both with investment and at board level, often in inner city areas.

Labour policy

Labour has been working hard to consult on small business policy issues and to improve its pro-enterprise image in the sector. It has pledged to retain much of the Conservative ‘architecture’ likes TECs and Business Links, although some remain concerned about the impact of the minimum wage, the EU Social Chapter and rights for union recognition when a majority of staff join.

Labour’s main policy ideas to promote small business growth, as they relate to larger companies, include:

enhancing Business Links, giving them responsibility to encourage secondment and mentoring from big to small companies and to form partnerships with established companies like the banks to run training schemes or venture capital firms to offer business ‘angels’;

providing affordable finance, with enterprise agencies, banks and other private sector companies, TECs and Business Links setting up local equity funds, and widening access to the loan guarantee scheme away from banks alone;

increasing prompt payment of bills, by forcing disclosure of large company policies and practices, encouraging the new BSI standard, and by providing for a statutory right to interest on late payments;

ensuring that the proposed University of Industry is useful to small and medium sized companies;

encouraging business incubators, typically with large firms and universities nurturing new small firms on ‘high tech’ business parks;

more information ‘on-line’ for use by small firms, through an internet Enterprise Zone paid for by companies with a commercial interest in offering services to the SME sector.

Bruce Millan’s Regional Policy Commission proposed a big role for regional development agencies, working with Business Links and local enterprise agencies, and stressed the importance of community businesses, voluntary organisations and cooperatives in providing jobs. Labour’s recent Road to the Manifesto document promised to develop SMEs, with improved advice, assistance and access to long-term capital, tough rules for non-payment of small business debt and enhanced Business Links.

Liberal Democrats

In July the Liberal Democrats published a “fair deal charter” for SMEs. Its eight point plan included:

a statutory right to interest on bills paid late;

new sources of finance, working with the private sector, but with a “vigorous” code of banking practice to protect SMEs;

regional development agencies to take over regional government offices, responsible for strategic economic regeneration;

improved coordination, perhaps through mergers of Business Links, TECs and chambers of commerce, to create the ultimate one-stop-shop.

Enterprise agencies

For enterprise agencies, the arrival of new organisations with bigger bank balances has not been easy, but their brief remains broader, deeper and more long term than others. They are uniquely placed to act as brokers between large and small companies and can provide the on-going support and hand-holding which small firms value. They are good at partnership building, having been instrumental in setting up many of the education business partnerships, especially Compacts. They are well placed to support voluntary organisations, trying to be more business-like, and help community businesses, as the joint working between LEntA and the London Boroughs Grants Unit demonstrates.

Challenges ahead

The biggest uncertainty in future policy direction is whether TECs will be allowed to address the small business agenda effectively. The present government founded them with the mission “to foster economic growth and contribute to the regeneration of the community by strengthening the skill base and assisting local enterprise to expand and compete effectively”. While they have set about the T part of the agenda with a will, they have never had the resources to tackle the E effectively.

Labour’s small business spokesperson, Barbara Roche MP, has been critical of the TEC record on small business training, but it is not clear whether the Millan Commission’s negative stance on TECs’ enterprise role reflects official thinking. The critical question for a new government is where will primacy for enterprise support lie: back in the public sector through the regional development agencies? Will TECs be given the tools to do the job? How will Business Links continue when the money runs out? The worst outcome for large companies, willing to get involved with help, is more of a muddle.

Corporate Citizenship Briefing, issue no: 29 – August, 1996