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Government sets out plans to help small businesses

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The government has laid out its plans for boosting small business activity.

Small firms account for 60 per cent of jobs in the UK and contribute 50 per cent of GDP. Yet just one in five small businesses actually record a growth in their workforces each year.

To enable smaller firms the chance to develop and expand, the government has come up with a series of proposals aimed at supporting entrepreneurship.

These include improving access to finance; making it easier to do business with the public sector; and allowing social tenants to start up their business at home.

Lord Young, the former trade and industry secretary, has been appointed enterprise adviser to the Prime Minister and has been given the task of overcoming government’s “institutional bias” against small business.

He has been asked to produce a “brutally honest” report on ways in which the government can remove obstacles that have traditionally locked SMEs out of public sector procurement opportunities.

Lord Young is to focus on four key areas: encouraging start-ups by removing the slant in careers advice and training in favour of those seeking jobs rather than working for themselves; cutting down on regulatory burdens; maximising opportunities by reforming government procurement; and improving communications between government and SMEs.

The government published a document, entitled Backing Small Business, which details its plans for encouraging entrepreneurship.

The Enterprise Finance Guarantee (EFG) is to continue for the next four years, making around £2 billion available to viable small companies without a credit history or collateral. This will provide support to 6,000 SMEs a year.

It will become easier for small and specialist lenders, such as Community Development Finance Institutions, to lend under the EFG.

A further £200 million is to be made available to Enterprise Capital Funds supporting equity investments in the highest growth potential businesses. It is anticipated the first of the new funds will be investing early in the new year.

To encourage private investments, there was a welcome for the joint bid of business angels and the government’s SME investment arm, Capital for Enterprise, for a co-investment fund as part of the Regional Growth Fund to support angel investments into high growth, early stage SMEs.

The government is also work with banks on several areas launched in response to the green paper, the Business Finance Taskforce. This includes the £1.5 billion Business Growth Fund, mentoring and a new lending code.

Speaking of the plans, Vince Cable, the Business Secretary, said: “Small businesses are critical for growth in this country. But to expand they need access to a range of finance options.

“The government is doing its part by supporting a further £2 billion of bank lending through the popular Enterprise Finance Guarantee which will provide real help to viable small companies looking to grow. Now we need the banks to play their part and increase normal commercial lending to get the economy growing.”

The Chancellor, George Osborne added: “Ensuring that viable businesses have access to suitable and diverse sources of finance is crucial for helping to get the economy growing again. The government is dedicated to creating the conditions for strong, sustainable growth, by ensuring the UK has competitive, dynamic and efficient markets that provide the right support to business.

“These measures will ensure stable financial conditions for business, a more competitive and transparent banking system and access to a more diverse range of sources of finance that suits their needs. The private sector is also taking steps to provide a diverse range of finance options for businesses – a development which is welcomed by government.”

On the question of tendering for public sector contracts, the government pledged itself to a target of awarding a quarter of all government projects to SMEs.

In order to make it easier for smaller firms to pitch for government business, as from December 2010 a standardised Pre-Qualification Questionnaire is to be introduced, which will be mandatory across central government.

A study into methods of accelerating the procurement process has been set up and is due to report in December 2010.

All government contractors will be required to pay their suppliers within 30 days if they wish to benefit from departments’ procurement. For central government construction contracts, the commitment to payment within 30 days has been made a contractual requirement and applies through the supply chain.

The government also promised to remove those barriers that prevent social tenants from applying to start up a business based in their home. In late November Jobcentre Plus will be running a campaign across all of its Jobcentres so that its advisers can direct people looking for work and interested in starting their own businesses to the support available to business start ups.

Elsewhere, the Intellectual Property Office announced that it will provide £3 million by way of funding for the Small Business Research Initiative, which uses government procurement to drive innovation.

Commenting on the measures, David Frost, director general of the British Chambers of Commerce (BCC), said: “We are pleased that the government has committed to extending the Enterprise Finance Guarantee, which has helped many businesses secure the working capital they need. Moves to simplify public sector procurement processes will also be welcomed by small and medium-sized businesses.

“We are also pleased that Lord Young will be leading the charge to remove barriers to small business growth – and encourage him to look very closely at the UK’s sclerotic and inefficient planning system in the weeks and months ahead.”