EU SMALL BUSINESS ACT
UK RESPONSE TO EUROPEAN COMMISSION’S CONSULTATION
Introduction
1 The UK believes that improving the enterprise environment for Europe‟s SMEs is key to delivering economic growth. We support the
initiative to develop an EU Small Business Act and welcome the emphasis placed on it by the European Commission.
2 On 12 March, the UK Government published a new Enterprise Strategy. In developing this, Ministers met with over 600 small business owners across the country to hear their ideas of what more the Government can do to help them. Officials have drawn on this information, economic and statistical data, and the views of business representative bodies to develop the new strategy. This work identified the following main enablers of enterprise:
? culture
? knowledge and skills
? access to finance
? regulatory framework
? business innovation
The Strategy also recognises there are wider benefits that enterprise can bring to communities in deprived parts of the county.
3 Through this and other work over the past 10 years, we have built up a strong evidence base on barriers to growth and we look forward to sharing this with the European Commission and member states in future discussions of the EU Small Business Act.
4 The UK Government welcomes the opportunity to contribute to the development of the Small Business Act. We believe it is crucial to build on the progress made over the past 10 years that has been based around the principles of open markets, competition and better regulation.
5 During this time, much effort has been devoted to making it easier, cheaper and quicker to set up a new company. We believe these efforts should continue, but that the Act should place particular emphasis on facilitating SME growth.
6 In taking this work forward, it will be important to ensure that proposed measures are designed to address specific market failures, supported by a strong evidence base and formulated in line with better regulation principles.
7 Furthermore, we believe that action should predominately be for member states to take forward, addressing individual national issues and
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circumstances. The EU should act where it can have the most impact and in
our view this should primarily be ensuring that Europe has a well-functioning
Single Market that is underpinned by the best possible regulatory environment.
8 It is also important to ensure that SME-specific issues are
systematically consider in other relevant Commission initiatives such as Lead
Markets, Sustainable Industrial Policy, Sustainable Consumption and
Production, and Standards and Innovation.
9 Finally, the UK believes the Act should give firm commitments for
action and, where necessary, foresee future legislation, but should not itself
be a legislative measure.
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UK RESPONSE TO EUROPEAN COMMISSION’S CONSULTATION
General question
What are the most important problems that European SMEs are facing and
which prevent their growth? How to tackle them?
Consultation with UK SME representative bodies on domestic and European
matters consistently shows that the main issue for their members is
regulation. The 2007 EU Observatory Survey found that 36% of SMEs within
Europe reported that regulations acted as a constraint or had presented
difficulties in the previous two years.
Evidence shows that smaller businesses face a regulatory burden that is
considerably higher than that of larger companies. The Commission‟s expert
group on the burden of regulations reported in May 2007 that where a large
company spends ?1 per employee on regulatory obligations, a small business
might have to spend on average up to ?10.
Whilst progress has been at the EU level, for example on the promotion of the
“Think Small First” principle and the European Commission‟s commitment to
reduce administrative burdens by 25%, we believe a much more ambitious set
of measures should be introduced. Our response to Section 1 of the
consultation presents a number of specific proposals.
Another important issue is access to finance, where we believe action should
be focussed on improving the demand side, in particular investment readiness,
and the supply of modest amounts of finance for entrepreneurs who, for
various reasons, are deemed to be a higher risk.
In order to grow, SME must also have access to new markets. Generally,
exporting firms have been found to benefit from greater productivity growth
than non-exporters. A recent study indicates that between 1996 and 2004
some 60% of UK productivity growth was attributable to exporting firms. The
EU Observatory, however, found that only 8% of SMEs report turnover from
exports. SMEs still encounter barriers in trying to access and take advantage
of the Single Market and its 490 million potential customers. We hope the
Small Business Act, in tandem with the Single Market Review, will reflect the
concerns and needs of the SME community. Our response to Section 3 of the
consultation outlines some particular areas of concern.
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1. Better Regulation for the benefit of SMEs
1.1 Is the current EU SME definition an obstacle to targeting support for SME growth in the right way?
The UK has not seen evidence to indicate there are market failures not being met by the current SME definition. Statistics show that over the period 1998-2005, productivity growth was faster in UK SMEs than in larger companies. This would seem to argue against an increase in the definition and indicate that business support should focus on helping the smallest businesses to grow into larger businesses.
We would participate in any discussion on the definition more broadly, including looking at existing ownership rules and the restrictions these can place on, for example, business angel ownership. Our firm view is that any debate must be underpinned and steered by robust data and analysis. We would support a change to the definition only if the evidence clearly pointed to this conclusion.
We are also aware of calls for the creation of a separate “innovative SME”
definition. Again, we believe thorough analysis must be undertaken before deciding whether to introduce such a definition.
The UK supports current Commission action on State Aid and would not favour any weakening of State Aid or competition rules.
1.2 In addition to the systematic application of the subsidiarity and proportionality principles in legislation (see question 6.2) could differentiation regarding the way legislation is elaborated and applied according to the size of the company be useful (e.g. lower fees, fewer reporting requirements, thresholds or longer transition periods)?
1.3a Do you consider that directly applicable EU-level legislation in certain areas creates a disproportionate unnecessary administrative burden on SMEs?
1.3b Would excluding SMEs from such direct application of EU legislation be a solution?
Evidence also shows that smaller businesses face a regulatory burden that is considerably higher than that of larger companies. We calculate that around 300 regulations are introduced each year that impact on UK business and 50% of those originate from the EU. So action to reduce regulatory burdens on SMEs must be taken at EU as well as national level. We believe the Commission should utilise the “think small first” principle and where relevant,
introduce exemptions from administrative requirements and undertake specific screening from a small business perspective. This could be done through two mechanisms:
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Exemptions
The Commission should, where possible, look to exempt small businesses
with fewer than 20 full time employees from new regulation. Where
exemption is not possible, either for legal or policy reasons, Directorate
Generals should work with small firms to design specific approaches for them,
including simplified enforcement and effective guidance.
Small Firms element in impact assessment
The importance of the “Think Small First” principle is now widely recognised,
but the challenge remains to convert the principle into reality. We believe the
only way this can be achieved is to build a small business element into the
impact assessment process. A small business filter would ensure that all new
and amended legislation affecting business is systematically assessed to
identify impacts and any unintended consequences on small businesses, with
a view to introducing exemptions and/or thresholds.
The Government recently announced its intention to consult on the
introduction of a new system of "regulatory budgets" for Government
Departments which will set out the cost to business of new regulation that can
be introduced within a given period. The Government is considering whether
this new system could be piloted by focusing on the costs faced by SMEs. In
the future, the Commission could consider introducing a similar approach
within Directorate Generals, learning from the UK pilot project experience.
In addition, completing statistical returns can be time consuming and costly for
small businesses. The coverage of Intrastat should be reduced so as to
effectively minimise the burden on as many small businesses as possible
while maintaining those aspects of the data that are essential. Also, if a small
business is sampled, it should then be exempt from any further requirements
for at least three years.
1.4 Would the introduction of common commencement dates for all SME-
relevant legislation coming into force and/or publication of an annual
legislation statement be useful for SMEs?
The UK strongly supports the introduction of common commencement dates,
supported by annual legislation statements at the EU level. Common
commencement dates and annual statements were introduced in the UK for
domestic regulation in 2005. Feedback received so far from business (not just
SMEs) indicates that they have been well received, in particular the reduced
need for horizon scanning for impending new legislation. Our cautious
estimate is that they have saved UK SMEs between ?15- 30 million a year;
the figure could be as high as ?1 billion a year if savings for large business
were included.
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UK business has also expressed a wish to see the concept extended to EU
legislation. There would be clear advantages in having greater consistency
over national and EU implementation deadlines. The UK believes that an
approach of setting fewer, more consistent, transposition deadlines or
implementation dates should be explored further subject to exceptions
covering:
? emergencies; e.g. those involving public, animal or plant health;
? anti avoidance measures necessitating urgent closure of loopholes;
? measures which remove significant risk or detriment from business;
? instances where the costs of timing a measure to meet a CCD
would be wholly disproportionate to the public purse and/or
business;
? measures that do not impact on business.
1.5 Do you think additional focused measures to alleviate the administrative
burden on SMEs would be useful?
The UK welcomes the European Commission commitment to reduce
administrative burden on business by 25% and the progress made in 2007.
However, this exercise currently only covers existing legislation. We would
like the Commission to be bolder and extend this work to new legislation. We
believe that tackling both current stock and new incoming legislation would
ensure an overall reduction in administrative burdens.
1.6 Would you suggest any other obstacles or additional issues to address?
Consultation periods
Business representative organisations that are invited by the Commission to
submit views on new and amended policy, need time to assess the relevance
of a consultation to their members, consult them, analyse their responses,
build alliances and submit views to the Commission. The current consultation
period of 8 weeks is insufficient when potentially contacting 23 million
businesses in 27 member states. Consideration should be given to extending
the period to a minimum of 16 weeks (as recommended by the Mandelkern
Group) to give SMEs and SME organisations adequate time to distribute,
collect and analyse members‟ views.
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2. Putting SMEs at the forefront of society
2.1 Do you see a need for additional measures in the Member States or at EU
level to stimulate entrepreneurship through education?
We believe it is important to have an enterprise culture where everyone with
entrepreneurial talent is inspired to take up the challenge of turning their ideas
into wealth.
The UK has implemented measures to stimulate entrepreneurship through
education. As well as these, other existing measures, such as the work of the
UK National Council for Graduate Entrepreneurship (NCGE), already play a
significant role in supporting international entrepreneurship education. The
NCGE has a founding role in the EU Expert Group for Entrepreneurship
Education and has been involved in developing a proposed learning
outcomes framework.
The role of education in fostering entrepreneurship is an area where the
European community can add value by facilitating peer learning activities and
exchange of best practice. The European Skills review should include
entrepreneurial skills in its scope to assess gaps and identify future needs.
2.2 Is entrepreneurship sufficiently reflected in school curricula?
The Government is keen to promote an enterprise culture. It wants to see
stronger links between business and schools, giving pupils and students a
better understanding of their future role and responsibility in the economy. The
Department for Children, Schools and Families has an Enterprise Education
Strategy to help young people to be creative and innovative and take and
manage risks. Its work embraces future employees, not just future
entrepreneurs, and social enterprise.
Enterprise is now written into most School Development Plans in England and
the proportion of secondary schools providing enterprise education for all or
most of their students has increased to well above 90 per cent. Moreover, the
Government has recently announced that it will extend enterprise education in
England from secondary to primary and tertiary education. Enterprise is also
reflected in school curricula in the Devolved Administrations in Scotland,
Wales and Northern Ireland. For example, Wales has introduced interactive
material into its National Curriculum to equip young people aged 5-19 with
entrepreneurial skills, knowledge and experiences by effectively utilising
successful SME role models in schools and placing entrepreneurship
champions in every higher education and further education institution.
The NCGE is working to ensure a stronger role for enterprise within Higher
Education curricula, particularly for those HE institutions and teaching
disciplines where these have not traditionally been strengths. NCGE's Flying
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Start programme has radically improved the support available to HE students
thinking about or planning to start up their own business.
2.3 Do you see a need for the media to take a stronger role in fighting
negative stereotypes towards entrepreneurship?
While there is no fixed stereotype towards entrepreneurs/entrepreneurship in
the UK, the media is contributing to addressing any potential stereotyping,
through popular television programmes such as “Dragons' Den”. The media
has an important role in promoting positive images of entrepreneurship,
particularly in relation to representing and targeting entrepreneurs from under-
represented groups.
2.4 Would you suggest any other obstacles or additional issues to address?
Women‟s enterprise
While women make up an equal proportion of the EU adult population, they
remain a minority in terms of enterprise activity. Data from the Global
Entrepreneurship Monitor shows that across all EU countries women have low
rates of entrepreneurial activity, in particular in comparison with the US, where
the rate is 9.7%, with the EU average being just 3.5%. The UK has already
established a Women‟s Ambassadors Network and recently announced plans
to pilot women‟s business centres, a national women‟s mentoring networks
and dedicated enterprise support for women. We believe member states
should increase efforts to encourage female enterprise and that the European
Network to Promote Women's Entrepreneurship (WES) should play a stronger
role in identifying barriers/solutions and facilitating the sharing of good
practice.
Social enterprise
Social enterprises are playing an increasing role in the economy. As well as
contributing to the economy, social enterprises also draw new people into
business from groups historically not attracted to entrepreneurship. They also
help tackle some of our most entrenched social and environmental challenges
in innovative ways. It is important, therefore, to consider the specific needs of
social enterprises when developing new legislation and devising support
activities.
Business to business mentoring
Feedback from UK SME business has shown there is a growing demand for
business to business mentoring with experienced entrepreneurs willing to give
time to mentor other entrepreneurs. This is not just true of high growth
entrepreneurs but also of those in underrepresented groups (women, ethnic
minorities, young people and the over 50s). The UK is about to undertake
work to establish better links between existing mentoring programmes and the
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overall business support network. We believe the Commission and member states should look at how to promote and facilitate mentoring as a source of business advice for established SME owners seeking to grow their business and to help encourage entrepreneurial success in underrepresented groups.
Global Entrepreneurship Week
The UK has been running its annual Enterprise Week since 2004. This aims to help create a more enterprising culture amongst young people in the UK. The 2007 event attracted over half a million participants. The first ever thrd – 23 November 2008 and Global Entrepreneurship Week will run from 17
will be the world's biggest single event of its kind. So far over 30 countries have signed-up to take part. We believe the event will encourage young people all over the world to realise their entrepreneurial potential and leave a legacy of people inspired to think and work globally in order to create value for their own local economies and communities. We believe a strong European participation would contribute to creating a more enterprising culture amongst young people in Europe.
2.5 Would it make a significant difference to further reduce the time and costs for registering a company?
Clearly it is important to make it easier to set up a company, but it should be recognised that authorities often need time to make necessary checks to prevent potential fraudulent activity. Cost, however, is still an issue. The Commission announced last October that the average cost of starting a business across Europe had fallen to ?382. This is still very high; in the UK it costs a minimum of ?20 to set up an incorporated company.
2.6 Do you think it would be useful to propose additional measures to facilitate business transfer and tackle bankruptcy?
The UK thinks that measures to facilitate business transfer and tackle bankruptcy are largely for action at member state level. On the latter, recent studies, including one prepared by an EC expert group in 2006, have found no conclusive evidence of the benefit of public sector intervention in the buying and selling market. There could, however, be a role for the Commission in helping member states share good practice.
The UK is seen as having a tax and legal environment that generally offers a level playing field for the various possible transfer options. A UK cross-Departmental review of the barriers to successful business transfer and an independent study into the operation of the UK market for buying and selling have been undertaken in recent years, but no fundamental market failures were identified to necessitate new policy initiatives.
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