Government Support for Business

WEEKLY COMMENT 8-05-2014

By Barry Edwards

Government Support for Business

Lawrence Tomlinson spent a year as the Department for Business’ (BIS) entrepreneur-in-residence. In an exclusive and candid article which he posted on Business Zone this week, he shares what he learnt. Click on the link below to read his post which is two pages long;

http://www.businesszone.co.uk/topic/finances/thick-it-seven-things-i-learned-entrepreneur-residence/56544

He highlights the fact that there are 800 finance and support schemes which are supported by the government. Most entrepreneurs and businessmen have little knowledge of any of the schemes and do not realise there are ways that they can apply for assistance. The BIS has only recently started to publicise this and he suggests two government sites to check out for some guidance on what to do to start the process of discovering whether you fit the criteria or not. If you are looking for funding it is worthwhile looking at the BIS site.

Prior to the UK coalition government coming to power in 2010, Business Link used to guide companies to the right schemes for a nominal cost but it was disbanded in the cost cutting to reduce public expenditure. The new BIS sites are still not well known but that should change as the economy improves and promotion is given more priority.

Government has always tried to provide the stimulus to finance the growth of companies which is not provided by the private sector because there is no collateral to secure the lending. This naturally creates a dilemma for the civil servants deciding where to provide financial support and, as nobody is always right, they sometimes choose to back a venture that ultimately fails. Venture capital funds also make similar mistakes so it is not just government getting it wrong but that is the nature of risk and long may it continue.

Lawrence Tomlinson points out that civil servants do the very best they can within a rigid framework which is often interfered with by political forces. The intentions are honourable but the method of delivery is flawed because the rules can change quickly discouraging the private sector to build up a relationship with the government departments responsible for making the decisions.

The UK is not alone in this bureaucratic muddle as many of you who read this weekly comment around the world will also have discovered. Many countries have special organisations to take over the responsibility of providing government support but they are still managed by civil servants with some seconded private sector professionals. There are some countries that have privatised this activity entirely and they have a much better track record.

Concentrating all decisions on government support for business within one organisation makes a lot of sense and the UK are in the process of doing this but it takes time to transfer these responsibilities. Some departments are reluctant to give up these cherished assignments delaying the original plans. In the past, when different political parties take over government, many of these decisions are changed again which is what has happened with the BIS previously the Department for Trade and Industry (DTI). It is not surprising that private sector businessmen are totally confused with what support is available with all this chopping and changing.

Banks have never been any good at explaining government support for SME’s which is surprising since it would reduce their lending risk in some cases. The process of applying for support is complicated and never straightforward and unless a company employs experienced advisors used to dealing with government departments to handle this for them the funding often fails to materialise.

The main reason for this is that governments are not willing to define precisely which companies are likely to get support because politically they want everyone to believe they are there to help business and especially if you start up a business. Government publicity in the media does not translate into a proper support mechanism that businessmen can rely upon. There are some cases that get well publicised but the amount of money actually released is tiny compared to the sums mentioned in the original announcement. These few cases are picked up enthusiastically by the media and used time and again by politicians to promote their business support policies.

It is not easy to satisfy a nation politically that all government support for business is genuine and not biased in one way or another. That is precisely why this whole activity should be placed firmly in the hands of the private sector which has to justify its actions commercially and face any criticism from both government and public. I have made some suggestions how you can do that in the Economic Growth Plan which you can click on in the right hand column under Categories if you wish to read a proposal. The UK government is moving in that direction but has yet to make that final leap.

That’s all for this week, more observations next week.