Brexit funding gap a threat to growth and productivity

Billions of pounds in EU funding dedicated to supporting small firms must be replaced to avoid the risk of an economic slowdown post-Brexit, according to the latest Federation of Small Businesses (FSB) report.

FSB is calling on the new Government to seize the opportunity presented by Brexit to radically reform England’s business support landscape. Its proposals include creating a streamlined Growth Fund for England before the Brexit process completes. The Fund would bring together a domestic replacement for EU funding and the Single Local Growth Fund (SLGF). The EU has dedicated £3.6bn to developing the competitiveness of UK small firms for the funding round ending in 2020. There is currently no regional development spend budgeted at the national level beyond 2021.

The new ‘Reformed Business Funding: What small firms want from Brexit’ report finds that eight in ten (78%) small firms have sought business support services over the last 12 months. Those in Yorkshire (25%), the North East (22%) and North West (18%) were most likely to submit applications for EU-funded schemes1.

Of those that have applied for such schemes, the majority believe EU funding has had a positive impact on their business (68%) and local area (64%). The research indicates that the benefits of EU funding are even broader, with many other businesses indirectly gaining from wider economic growth.

The research uncovers a clear relationship between the likelihood of applying for business support and growth ambitions among small firms. Those looking to grow by 20 per cent or more (89%) are far more likely to apply for support than those that aspire to remain the same size (65%).

Mike Cherry, FSB National Chairman, said: “Small businesses across the country are staring into a business support black hole from 2021. This is a particularly pressing issue for the many small firms with growth ambitions and those in less economically developed regions. If the next Government is serious about developing an Industrial Strategy that delivers prosperity across all areas of England, it must replace EU funding dedicated to small business support and access to finance after we leave the EU.”

Successful applicants for EU-funded schemes express various frustrations with the application process. The most common being the amount of information required to make an application (59%), the length of the application process (47%) and the need to meet excessive reporting requirements after funds are granted (44%). Only one in ten (12%) found the application process very straightforward. As a result, FSB proposes a reduction in bureaucracy as part of a reformed business landscape.

FSB’s new report also highlights a lack of engagement with EU-funded programmes among small firms. Around half (44%) of those that have not made an application say they are unaware of opportunities to do so. Successful EU funding applicants are most likely to find out about opportunities through existing business contacts (34%).

Under FSB’s proposals, a single Growth Fund for England would simplify the funding streams available to Local Enterprise Partnerships (LEPs) for the establishment of effectively marketed, properly assessed business support programmes. Funding would also be provided to secure the future of Growth Hubs and establish a ‘What Works Hub” equipped to evaluate the effectiveness of different schemes and facilitate their improvement.

Mike Cherry added: “Small businesses are clear that EU-funded support is a vital lifeline. But they’re equally clear that the process for attaining that support can be a real battle. It’s not unusual to find small firms giving up halfway through an application because forms are too long or complex, or they fear grants will be clawed back at the first sign of an admin slip. Sadly, it’s often the time-poor businesses most in need that struggle in the face of this bureaucracy.

“Brexit marks an unprecedented opportunity for fundamental reform. LEPs and Growth Hubs must be empowered to tailor and simplify support according to local requirements. Ensuring that all small firms are aware of business support schemes should be a top priority. We can’t have an environment where small businesses perceive personal contacts or administrative skills as more important to successful applications than genuine need.

“A shock to the business support landscape will have serious implications for small business aspirations as well as efforts to improve productivity and rebalance the economy. The new Government must prioritise the development of a Growth Fund for England pre-Brexit or risk a slowdown in the economy.”

Notes to editor

1) On behalf of FSB, independent research company Verve surveyed 1,659 FSB members about their views between 5 – 16 December 2016. FSB also carried out a series of interviews and focus groups with members across the UK.

About FSB
As experts in business, FSB offers members a wide range of vital business services, including advice, financial expertise, support and a powerful voice in Government. Its aim is to help smaller businesses achieve their ambitions. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy.

New FSB report reveals huge opportunity to double the number of small business exporters

New FSB report reveals huge opportunity to double the number of small business exporters

  • Potential for small firms to make greater contribution to exports market
  • Finding customers remains the biggest challenge to small firms wanting to export
  • Established export markets – including Europe and North America – remain dominant but emerging markets are making headway

The Federation of Small Businesses (FSB) has today (Monday) published a comprehensive report exploring the way small businesses interact with the global export market. “Destination Export: The small business export landscape” highlights key characteristics and drivers of small firms that currently export and, crucially, the potential exporters of the future. The focus on potential exporters offers insights into what more could be done to move the dial on growing the number of small firms selling overseas.

The proportion of small businesses exporting, one in five, (21%) has remained static for many years. One of the key findings of this report is that the number of small businesses currently exporting is matched by those that would consider exporting (21%). This points to the huge potential to double the number of small business exporters. In order to tap into this potential, the Government, the private sector, the finance industry and business associations including FSB, must now focus on providing effective targeted and tailored support.

The most common challenge facing small firms in exporting is finding customers, followed by marketing their product to overseas customers. For those currently exporting the most common challenge remains foreign exchange rates. While for potential exporters, there is a pervasive knowledge gap to overcome – one in five small firms that would consider exporting do not know where to go for support. This report also found there are issues around confidence in trading overseas and an assumption by some small firms that exporting is not for them. Yet there are clear benefits with the average annual turnover of an exporter (£935,921) more than double that of a non-exporter (£390,028).

Martin McTague, FSB National Policy Director, said: “Small businesses that export are more likely to survive, grow and innovate. But in addition to more traditional barriers such as language and foreign exchange, businesses are having to deal with a rapidly changing export landscape and the advantages and challenges brought about by e-commerce. Any support must be designed with this in mind and should be able to cater to a wide range of export needs, both for those currently exporting and for those considering doing so.”

“The Government clearly understands the need to promote exporting given the decision in late 2015 to refocus UKTI’s role and make exports a priority across government departments. Small businesses are well placed to make a significant contribution to the Government target to increase the value of exports to £1 trillion and support 100,000 new exporters by 2020. But the fact remains, many small businesses aren’t aware of the support available or how to access it. This report provides some critical insight into the kind of support small firms need at different points along their export journey and provides key recommendations on how close the gap between demand and delivery.”

This exports report has been researched and written against the backdrop of campaigning around the EU referendum. Given the UK’s decision to leave the EU, ‘Destination Export’ could not be published at a more uncertain time. Maintaining a stable and secure trading environment for small businesses must now be the priority.

Martin McTague continued: FSB has clearly and consistently called for clarity on what the UK’s exit from the EU means for business, with particular emphasis on access to the single market and the free movement of people and trade. The majority of FSB members export to the single market with provides access to 500 million potential consumers, more than 26 million businesses and is worth around £9 trillion.”

The EU is by far the dominant export destination for small businesses with 93 per cent of exporters selling to countries within that trading bloc. But our report does point to signs that newer entrants to the export market are attracted to a more diverse range of destinations, especially emerging markets in Asia and the Middle East. Those offering support must seize this opportunity boost this trend and diversify the export market further by helping to provide market knowledge and practical information on logistics, delivery and translation services.

Current Government-backed support, particularly UKTI services, have made some headway with exporters. Our survey showed that of those who accessed export support, over a third (37%) used support provided by Government. But this report recommends one key way for UKTI to help maximise the chances of exporters getting approached by customers overseas. It’s Exporting is Great website allows UK businesses to search for export opportunities but there is potential to create an online platform allowing businesses to show their wares to overseas markets and increase their visibility.

The report, ‘Destination Export: The small business export landscape’ will be officially launched on Monday 18 July 2016 at an evening reception in the prestigious Admiralty House at the Heart of Whitehall. Attendees will be hearing from Lord Price CVO, Minister of State for Trade and Investment.

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