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FSB London response to the Draft Economic Development Strategy

13 March 2018

Introduction

The Federation of Small Businesses (FSB) is the UK’s leading business organisation. It exists to protect and promote the interests of the self-employed and all those who run their own business. The FSB is non-party political and is also the largest organisation representing small and micro sized businesses in the UK.

Small businesses make up 99.2 per cent of all businesses in London, and make a huge contribution to the UK economy. They contribute 44 per cent of London’s GDP and employ 39 per cent of the workforce1

Small and micro businesses – whether long-established or just starting out – are a vital part of the London scene. Not just as drivers for growth, but as the glue that holds communities together. This is as relevant in central London as it is in the outer Boroughs.

However, London’s small and micro businesses have been badly affected by spiralling costs that include increasing property costs and taxes, employment costs and increasingly challenging logistics for supplying and servicing their business. All of these and more, squeeze already-stretched margins and diminish the ability of small businesses to invest, grow and create employment.

FSB Response to the New Draft Economic Development Strategy

Do you agree with the Mayor’s vision to create a fairer, more inclusive economy?  Are there any other trends and drivers of change which you feel should be addressed, and how should the Mayor be responding to these?

  1. World Class Education:

    Small firms are investing in their staff, but very often through more flexible bite sized chunks and often informal methods – which are often unaccredited and more on the job based.  The cost of apprenticeships, lack of time to devote to training, concerns around their day to day management and difficulty accessing information are just a few of challenges identified by smaller firms. How we capture the training that takes place that goes unaccredited by the business owner or other employees will be very beneficial to London.  

    The focus of the strategy must be on lifelong learning from cradle to grave. We must not get drawn into picking winners or focussing wholeheartedly on the impending Adult Education Budget devolution to London.  The strategy for employers must be all encompassing to reflect the need for a new skills system that will be ever-changing – for instance coding skills at younger ages, the move away from ‘jobs for life’, the drive towards Artificial Intelligence that will affect many jobs in sectors such as wholesale and retail;  and an ageing population and the effects. 

    We are pleased that the Mayor is seeking to extend the London Enterprise Adviser Network.  The opportunities for small firms to have a greater influence in informing curricula and the careers offering in early stages of education and further education is the right policy lever. For the strategy to be a success getting greater levels of business engagement (big and small) at all levels will bring short term and long-term benefits to the future workforce and small businesses.

  2. Opportunity for all Londoners


    The contribution of SMEs should not be underestimated to taking on the long-term unemployed - so we support the Mayor’s ambition to support the very long-term  unemployed.  Small businesses provide social value, community cohesion and create jobs faster and in larger numbers than any other kind of organisation can, across every sector. Our research2 shows that people starting up a small business or becoming an employee of an SME account for 88 per cent of all movements from unemployment into private-sector employment. We must ensure that the tools and resources are in place for small firms to take on long-term unemployed and/or people from disadvantaged backgrounds through strong borough engagement and a well-functioning growth hub matching service.

    In terms of digital inclusion it is vital that small firms, and Londoners generally, have adequate access to digital technology and solid broadband.  FSB calls on the Mayor to be ambitious for his plans for enhancing digital connectivity not only in the CAZ but also across London and ensure that all new development (both commercial and residential) provides ultrafast connectivity .of 1 gigabit (GBps) symmetrical broadband speeds.

  3. A lower cost of living

    Housing

    Over 8 in 10 (83 per cent) FSB members believe London Housing costs pose a risk to business growth in the capital. It is a major welfare issue and so retaining staff is of critical concern.  It is vitally important that we house the London workforce and future workforce in accommodation that is more than just liveable. An increase in the number of affordable homes based on earnings and not property values (at a rate of over 25,000 homes per year) is critical to support the small business community who are struggling to retain the expertise of their staff, and get a foothold on the property ladder themselves.

    We support moves from partner organisations within the ‘50000 Homes Campaign’ to lobby government for greater investment in housing such as direct grant to support small housebuilding, liberalising borrowing restrictions against local authority housing stock and investing in infrastructure to unlock development.

    Transport

    The cost of carrying out transport operations in the capital are rapidly growing year on year.  Small firms are faced with a variety of congestion, environmental and crossing charges, alongside rising parking costs (an FOI from the FSB showed that parking permit costs across Boroughs had increased by 81% in the 10 year period from 2006-2016) and the costs of public transport that restricts employees coming across the capital.  We must find ways to stop penalising businesses making ‘essential’ business journeys to service London – or we will be pricing them out of this great City.

    Measures to support employees

    Small businesses are family friendly by their very nature and they support their staff through a host of different wellbeing measures.  Many are supporting through flexible working, providing housing support through loans, providing payroll loans, extra pensions etc.  We support the Mayor’s drive to encourage employers to support staff – we are keen for the Mayor to use the Good Work Standard to find ways to monitor what small businesses are doing and celebrate the efforts of business in supporting employees deal with the cost of living.

    This particular section on the costs of living must address the high costs of commercial space which has a knock on effect on the ability of small firms to support their employees in other areas. If we do not address the cost of doing business, it will be harder to address the impacts on employees.

  4. Fairer Pay and Employment Practices

    The FSB feels it is important for the Mayor to recognise that many small firms, in sectors with tight margins, are keen to pay the London Living Wage but many simply cannot afford to pay it, with the additional costs of doing business in the capital.

    A recent survey showed that nearly half (47%) of small businesses have taken, or considered taking, at least one action to help their employees with the cost of housing. Measures include: offering loans for rental deposits and mortgage payments, providing accommodation, guaranteeing mortgages for employees and offering employees help to find accommodation.[3]

    Making a ‘Good Work Standard’ too rigid will lead to the exclusion of many small firms who are trying to do their best by their workforce.

    Many small firms who want to, but simply do not have the resources to pay the London living wage, will be put off by a London living wage commitment. The ‘Standard’ must not make it mandatory to pay the living wage but rather an aspirational goal for those that simply cannot afford to pay it. 

    The Standard must also be broad enough in scope to make sure that firms who are carrying out a plethora of ‘good working’ practices are brought into the standard – whether it be through diversity, health, skills, housing support, flexible working and good benefits to name but a few.  

    The Mayor also asks in the Strategy that ‘local authorities extend business rate discount schemes for living wage accredited employers across London’ we would argue that a lot of businesses in lower profit sectors such as hospitality, retail and social are undertaking a host of other measures but struggle to pay the London living wage to some or all of their staff.  It would be simply unfair to only allow London living wage accredited businesses a discount on their business rates.

  5. Better health and less poverty

    We can look at the success of the London Health Workplace Charter.  FSB London supports the work of the Charter – however, too few micro and small businesses are being accredited for recognition.  We believe having an accreditation will make small firms an even more attractive environment for employees to work in, however, small firms are put off by the time it takes to go through accreditation. 

    The Mayor should find ways through the Charter to make it a low bureaucratic process to receive an accredited Charter status.

  6. Inclusive and Safe communities

We know that business crime4 affects all businesses. It is often the smaller firms who are hit the hardest because they cannot absorb the cost. FSB research reveals how smaller firms are being affected5.

  • 48 per cent have been a victim of offline (non-cyber) crime, with an average cost of nearly £5,898.
  • 66 per cent have been a victim of cyber crimes, with an average cost of nearly £2,976.

Business crime has wide-ranging consequences beyond the direct financial cost of the loss or property damage. It can increase the cost of insurance premiums, damage the ability of a business to meet customers’ needs, cause reputational damage with both customers and suppliers, negatively impact employees, jeopardise future work and waste valuable time.6

Reducing all business crime is fundamental to greater business prosperity.   We Recommend:

  • Encourage small businesses to report every crime. Take measures to break down some of the negative perceptions such as by widely publicising how and where to report crime, making the process as easy and user-friendly as possible with minimum service user standards and seamless access to victim support services.
  • Keep the Business crime dashboard7 on the Mayor of London/London Assembly website updated
  • Continue to conduct the ‘MOPAC Business Attitude Survey’ and use the data to improve the service provided to the small business community.
  • Publish nationally comparable data on business crime (reported and detected) to enable businesses to compare the performance of the MPS with other forces.

What additional support could be offered to increase work-based learning?

We need to make sure that businesses have the right skilled people to be able to employ Londoners instead of having to rely on a workforce from outside of London.

A comprehensive analysis of the skills needs for the next three, five and ten years needs to be undertaken, followed by an action plan to help skill those entering the jobs market, and those moving from benefits to employment, to take those positions.

Also, lifelong learning needs to be included as the likelihood is more people will be ‘self-employed’ with portfolio jobs i.e. monetary skills in budgeting and time management.

The focus of the objectives must be on lifelong learning from cradle to grave. We must not get drawn into picking winners or focussing wholeheartedly on the impending Adult Education Budget devolution to London.  The strategy for employers must be all encompassing to reflect the need for a new skills system that will be ever-changing – for instance coding skills at younger ages, the move away from ‘jobs for life’, the drive towards Artificial Intelligence that will affect many jobs in sectors such as wholesale and retail;  and an ageing population requiring regular upskilling.

We encourage the London Enterprise Action Partnership (LEAP) to reintroduce the £3,000 Apprenticeship Grant for Employers (AGE), that was stopped two years ago, but greatly helped micro businesses with a fiscal incentive to take on a new apprentices under the age of 19.  (see below)

What additional business support (if any) do you think will benefit London’s SMEs?

An astounding 96% of all businesses in London are deemed ‘micro businesses’ and yet a significant chunk of Government incentives are chasing the ‘gazelles’ and high end Medium section of the often vaunted ‘SME’ network.  We have to start focussing on the lifestyle, start up, early growth businesses that make-up the hardest to reach element of London’s business community.

Apprenticeships

Vocational on-the-job training is considered by our members to be the right approach but they do not want to see the drive for greater availability come at the expense of quality.

FSB members tell us that it can cost up to £10,000 to train an apprentice in London, which is why we welcomed the additional £1,500 grant fund for London-based SMEs taking on apprentices in 2014. It was disappointing that this scheme finished in June 2015 and we would like to see it reinstated.

Furthermore, one of the key costs for an apprentice is travel. It not only stops many of them from taking up an apprenticeship but can be a key reason for their not completing one.

Solutions:

  • The LEAP to reinstate the London Apprenticeship Grant Scheme of £1,500 purely for micro businesses and in doing so, lobbying Government to match fund back up to the £3,000 mark. 
  • The creation of a New ‘Apprenticeship Travel card‘ – for those under the age of 19, this would provide free 1-9 travel card zone travel for new apprentices in businesses up until the completion of their apprenticeship.

Issue: Exports

Small businesses in London continue to lead the field when it comes to exporting goods or services to foreign markets.

Our research shows that one in five small businesses currently exports, and with the right support that figure could be double.

Bespoke support is important for micro businesses. As well as current initiatives to support reactive exporters, more needs to be done to help turn small businesses into strategic exporters. Without this, we will not be able to turn the dial on productivity. Export vouchers for engaging in this area would be a good start.

With Brexit uncertainty festering away within the growth ambitions of small businesses we need to be on the front foot with easy to digest offerings to micro businesses who are keen to export, who have never done so before, and demonstrate how it can be low cost and low bureaucracy.

Small businesses are prepared to research and travel to exporting areas but not if it draws them out of their business, with little long term reward, for more than 2-3 days.

The Department for International Trade, London and Partners and the Mayor’s Export Programme should work closely and help identify where the opportunities are for London’s micro and small businesses through the new £140million fund. 

Solution:

  • The LEAP to make sure that small and micro businesses are at the heart of mayoral activity aimed at encouraging trade with London and that there are fair opportunities to be involved in overseas trade missions/Trade Access Programs.

The former UKTI London offered low cost opportunities for new and aspiring small businesses to participate in overseas trade missions.  The outlay to small businesses was heavily subsidised due in large parts to the economic outlay on a micro business to take more than one day away from their business.  

Examples of schemes included

- ‘Export Insight Visits’ which provided a low cost programme for small businesses to visit potential new markets, organised by the then UK Trade and Investment,  at a subsidised cost of £99. 

- ‘Tradeshow Access Programme’ – Businesses could received a grant from £1,000 to £1,800 to attend an accredited overseas trade show or fair. 

How can the Mayor incentivise greater coordination when infrastructure investments are made?

It is important to remember that many small businesses, who were in business when the first shovel went into the ground to build Crossrail1, will not be in business at the start of 2019 when the Elizabeth line is opened.  Businesses have paid supplementary rates and had to incur environmental costs along the line but yet many will not see the benefits of long-term infrastructure.  We must remember the fact that business has, and will continue, to part fund major infrastructure projects and this fact should be celebrated by the Mayor.  No other major city in the UK will be asked to contribute for major projects in the way London has to and we need to provide extra incentives to those businesses who are contributing to our future success.

How can we best manage the intensification of residential and employment uses in town centres and along high streets whilst ensuring that they continue to serve existing as well as new communities, and retain their character?

Enabling small businesses to obtain commercial space that is affordable and readily available is critical for the growth ambitions of London’s business community.

There are at least three aggravating factors that should be recognised when considering the business rates burden on SMEs in London,

First, there are Permitted Development Rights (PDR). Across London, in just three years, 1.62 million sq m of office space has been approved for conversion to residential use.

Second, there is technological change. On the one hand, this is transforming how many businesses operate, and, on the other, it is creating entirely new industries. The impact on the margins of retail businesses is particularly well understood.

Third, there is Brexit, which is causing great uncertainty and, potentially, higher costs. Brexit has implications well beyond large firms and the financial services sector, and while large businesses have the resources to take measures to mitigate risk, London's Small businesses do not.

According to Valuation Office Agency (VOA) data, London is bearing a disproportionate share of the rating burden. While it has 16.2 per cent of rateable properties, it bears 32.1 per cent of the rates payable.

Furthermore,  businesses in London are subject to several levies, some of which are national and some specific to London: from the Community Infrastructure Levy to the Apprenticeship Levy and, in the past, supplements to fund the Elizabeth Line (Crossrail). Of course, sound cases can be made for all of these levies, and we would not suggest that they are, in any way, inherently 'bad'. The key point is that business rates pre-empt these levies, with no scope for offsetting.

When asked what the likely impact of the revaluation would be, only 15.7 per cent of FSB London members said there would be no impact. Nearly one third stated that they would cut back on capital expenditure, while 20.1 per cent said they would reduce headcount.

We are keen for the Mayor to lobby the Treasury for a more sophisticated system of thresholds and reliefs to reflect higher values in London and avoid ‘cliff-edge’ changes in occupier liabilities. More-realistic thresholds need to be set and the value differential between Inner and Outer London needs to be properly reflected.

  • Inner London: the threshold should be £20,000 RV for 100 per cent relief, tapering to £23,000.
  • Outer London: here RVs have increased by a lower percentage, and the threshold for 100 per cent relief should be set at £15,000, tapering to £18,000.

Furthermore, the Mayor can support our ask that Government reconsiders evidence on what has taken place as a result of the relaxation of Permitted Development Rights, and, advocate that a new policy be introduced whereby any current B1a office or B1c light industrial space in Greater London, which is occupied by more than 20 per cent (by floorspace in business use) cannot be converted under Permitted Development Rights for offices/light industrial to residential.

How can you or your organisation contribute to the Mayor’s vision for the economy and pledge to support the final strategy?

The Federation of Small Businesses supported the launch of the Economic Development Strategy in December at our Winter Reception.  We are delighted to respond to this document and are keen to engage with the Mayor’s office and the GLA in the run up to the final strategy – making our members aware of the Strategy and key areas of interest to the micro, small and self-employed community.

We would be delighted for the Mayor to address our members again – one year on from this launch – at our 2018 Winter Reception to give a state of London address.

Contacts:

Matthew Jaffa, Senior Development Manager – Greater London Region

Matthew.Jaffa@fsb.org.uk

07525 964838

Denise Beedell, Development Manager - Greater London Region

Denise.beedell@fsb.org.uk

07595 284 327

[1] https://www.london.gov.uk/moderngov/documents/s22201/SMEs%20in%20Londons%20Economy.pdf

[2] FSB Back to Work Report https://www.fsb.org.uk/LegacySitePath/policy/assets/publications/fsb_2012_back_%20to_work.pdf

[3] A London Business Survey was sent out online through the following organisations in May 2016: the FSB, CBI, London First, Business in the Community, Grant Thornton, Shelter, The Top track 250 and the CBRE. 196 responses were received of which 113 were from FSB members.

[4] "Business crime" is used as a term to describe both offline crime and cyber-crime perpetrated against businesses, the owner(s) or their staff during the course of business. For the purposes of this response: ‘cyber-crime’ describes crimes that take place using networked information technology. This includes the new crimes which computers and associated devices have enabled and traditional crimes committed using ICT. ‘Offline’ or non-cyber crime describes traditional crimes i.e. committed in the physical world.

[5] In January 2016 the FSB surveyed 1006 members on their perceptions and experiences of crime against their business, themselves and their employees (during the course of business) over the preceding 2 years (24 months).

[6] Negative impacts on employees might include psychological trauma which requires an employee to take time off and get counselling

[7] https://www.london.gov.uk/what-we-do/mayors-office-policing-and-crime-mopac/data-and-research/crime%20/business-crime-dashboard