The report from the National Audit Office said the Small Business Service, a part of the Department of Trade and Industry, was not able to measure its overall effectiveness, nor did it have the necessary influence over other government departments dealing with small businesses.
The NAO report also highlighted the plethora of different schemes aimed at small business which added to the difficulty of planning and monitoring cost-effective support. Some 3,000 different schemes are available from 15 different departments, although the Government is aiming to cut the number to 100.
Edward Leigh, chairman of the Commons Public Accounts Committee, said: "If the Small Business Service cannot show that the benefits it generates outweigh its costs, then why have it? No one is questioning the importance of small business. What I question is the value of the Government's intervention in this area."
The CBI's director general, Sir Digby Jones, said that its own analysis of the SBS had shown that it was failing to meet most of its targets, while its claims to have delivered on deregulation were unfounded. "The SBS doesn't have enough clout with, or co-operation from, other parts of government to properly deliver its objectives, and it has no credible system to evaluate its success, or otherwise, on behalf of small business," he added.
David Frost, director general of the British Chambers of Commerce, said: "When an organisation has to resort to using taxpayers' money to demonstrate its effectiveness, that is the time to question whether it should continue."
The BCC added that the NAO report described "a government department which has spent money without bothering to evaluate and measure how it is spent and how much value it is adding and which seems to be incapable of co-ordinating its activities to bring benefits to small businesses".
The Conservatives said it was time for a full audit of all small business schemes. Mark Prisk, the Tory spokesman on small business, said: "It is clear from the NAO report that the Government has no idea - and no way at present of finding out - which of its small business schemes are effective and which are not."
The DTI said the NAO report had recognised the positive contribution the SBS had made to championing small businesses and maintained that all the schemes it ran were monitored and evaluated. It also said the service was meeting two of its three PSA targets. Successes included doubling the number of firms using Business Links to 500,000 between 2001 and 2006.