No big idea to help small firms

For half a century, successive Tory and Labour governments have grappled unsuccessfully with the problems of small businesses.

Attempts to find simple, politically appealing answers have failed, because the more closely the problems faced by entrepreneurs are examined the more complex they have proved. Yet the political pressures to deal with the issue are immense because more than half of all employment outside government is in firms with fewer than 100 staff, and as a group they create more new jobs than large firms.

In the early post-war years, the Labour government and the Bank of England set up the Industrial and Commercial Finance Corporation to boost investment in what was regarded as a vital part of the economy. The organisation was successful - it became the 3i venture capital group which was floated recently - but its role was limited.

The 1970s began with the Bolton report on how government could help small firms and ended with the Wilson report on finance and industry, a large part of which was devoted to small businesses. In those days the biggest concern was a shortage of finance and the focus was on how best to give government help and encourage the City to supply more funds.

This led to loan guarantee schemes - which still exist - under which the Government underwrites part of the cost of commercial loans to small firms.

The preoccupation with finance resurfaced after the 1990-91 recession, when thousands of small firms went bust because their banks pulled the plug. This led to a fresh political row over the relations between small firms and their banks.

But once again it proved impossible to find any all embracing solutions, and the outcome was a series of codes of practice.

However, the row also highlighted a vast array of other problems for small firms. There is a growing view that these together are more important than difficulties over finance. They include a mass of red tape in tax, employment, health and safety and companies legislation and a confusing number of bodies providing advice. Other issues are high business rates and serious deficiencies in education and training.

Investigations also threw up the scandal of late payment, and showed government departments as well as large companies were failing to pay bills on time. It was this issue that put small firms back in the limelight.

But it was typical of the debate that the original straightforward solution of a statutory right to interest on late payments proved to have many drawbacks, and the Government and many business lobbies have gone cool on the idea.

Small firms now look likely to be an important part of the election campaign as the main parties line up detailed policies for their manifestos. Many of their ideas overlap. Indeed, Labour and Tory ministers have each accused the other side of stealing their recipes.

Michael Heseltine, when he was president of the Board of Trade, made small firms a central part of his policy, a theme continued by Ian Lang. Mr Heseltine was responsible at the DTI for setting up Business Links, a nationwide network of small firms advice centres. He also made small firms policy an important part of his two competitiveness White papers.

But Mr Heseltine's gaffe over his late payments as a businessman undermined his credibility. It was probably no coincidence it was the Prime Minister, not his deputy, who introduced the small firms conference yesterday.

The Labour Party, for its part, is determined to snatch the initiative. Next week Tony Blair is to introduce a industry forum conference on the subject.