Brexit funding gap a threat to growth and productivity

FSB Regional Chairman for Manchester, Simon Edmondson

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 Federation of Small Businesses (FSB) latest 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 schemes.

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 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%).

FSB Chairman for Manchester & North Cheshire, Simon Edmondson, said: “Small businesses in our region are staring into a business support black hole from 2021. This is a particularly pressing issue for the many small firms with growth ambitions.

“If the next Government is serious about developing an Industrial Strategy that delivers prosperity across all areas, 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.

Mr Edmondson 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.”