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Beauty contest to woo the favour of small businesses

Both the Conservative and Labour parties have gone out of their way to woo small businesses by promising unstinting support for training. But they have failed to address the key issues.

The Tories have just launched a set of strategies for training and business support. But the question they must ask themselves is does the business community want more of the same old initiatives?

For Labour the question is equally fundamental. Can it draw up any meaningful policies without first tackling the implications of its pledged national minimum wage? Its latest policy paper, Growing and Prospering - Your Business and a Labour Government, fights shy of this.

Both parties accept that the UK is a nation of small businesses. Even though there are 3.6 million businesses in the UK, only one in 1,000 are "large" with more than 500 employees. Just three in 1,000 are "medium" with more than 100 staff. One in four has fewer than 100 staff.

Small businesses are crucial job and wealth creators, yet the stock of such firms is highly volatile. For training providers, the small business market is both extensive and turbulent. For policy-makers, the task is to reduce business failure and spot high-growth companies in a rapidly-changing environment.

Official figures for 1980 to 1991 show the volatility of small firms. Although the number of businesses increased by 400,000, this was the difference between 2.1 million new firms registering and 1.7 million deregistering. Between 1987-91, eight out of 10 of new firms had fewer than 20 staff and it is estimated that only 35 per cent of VAT-registered businesses survive longer than five years.

In fact, few businesses make the transition from starting up to maturity to large-firm status. Survivability and growth depend innovation, which is low among very small firms. Small businesses also tend to employ less skilled employees, and rely on part-time workers at the labour market margins.

Small businesses often pay less and offer job insecurity, the result of high levels of business births and business deaths. There is evidence of significant under-performance in training. Despite recent improvements, 30 per cent of firms with between 50 to 99 employees have no training plan or budget. This rises 40 per cent of firms with 25 to 49 employees and 80 per cent of those with fewer than 15 staff.

Equally, 20 per cent of employers with 25-49 employees provide no off-the-job training, the figure rises to 64 per cent for those with 1 to 24 employees. Fewer than 23,000 established small and medium firms with are involved in Investors in People (IIP), the Government-backed training efficiency standard.

The Government has expanded the Skills for Small Businesses initiative which helps firms with fewer than 50 employees train key workers to develop training plans.

Rules for the Small Firms Training Loans scheme have been relaxed, and the training and enterprise councils and colleges are introducing small-firm employee development programmes. Belatedly, the Government has also received cash under the European Social Fund to train staff in small businesses.

TECs have nearly completed the Business Link network to encourage training and many are developing local networks of business angels who offer finance and skills to growing businesses. The Government is also rationalising the funding of business support services and giving local agencies greater control over service delivery.

Meanwhile, Labour, backed by the Commission on British Business, has published proposals for improving training and business support for small firms. The Business Commission recommends a network of "training angels" where MBA students work with small firms to introduce training plans. It also calls upon TECs to spend more of their budgets on employee training and small firms to form consortia to share the cost of IIP.

Both the Business Commission and the Labour party set great store on the University for Industry delivering training to small businesses, with the latter stressing that managers and employees in these firms would receive a fair share of the proposed a million individual learning accounts (ILAs), planned by Labour to share training costs between employers, staff and the Government.

Labour also recommend an enterprise zone site on the Internet which would carry information on equity finance, business angels and business incubators.

There is one overriding concern with the analysis by the Business Commission and the Labour party. Both start with training and business support policy and then add, almost as an appendage, the idea of a national minimum wage.

Starting with the minimum wage and exploring the implications for creating world-class small businesses would have been a much more productive approach. Without doubt, the minimum wage will have a greater impact on the salary costs of small businesses, especially those in sectors such as hotel, catering, retailing and textiles.

Logically, therefore, Labour should target the one million individual learning accounts in these areas of the economy. Labour should also encourage colleges to work with Business Links to assist small businesses affected by the minimum wage to obtain the training they need. But where there is time, there is hope. Labour are due to publish their final statement on training policy during the early part of March. The national minimum wage would be a good place to start.

Mark Corney is director of MC Consultancy

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