Foreword

Small businesses and the self-employed are so often the heartbeat of their communities, through their volunteering activities, support for local schools and colleges, and their willingness and ability to employ those furthest from the labour market.

For any business, ‘time’ is king. However FSB research conclusively shows that smaller firms are remarkably generous in contributing their time towards the greater good within their communities. Small businesses must, therefore, be given the regulatory, economic and physical space and support to thrive. Policy makers must carefully consider the economic costs of any new legislation and the opportunity costs associated with poorly-designed regulation and reporting requirements. These costs negatively affect UK productivity but, at a local level, they also rob communities of an integral source of support. Policy makers must also embrace new ways of measuring and rewarding the value that smaller businesses create for their communities through, for example, reducing social exclusion, improving health and wellbeing, increasing employability, creating better access to services, improving the local environment and creating greater community cohesion. The particularly important role that smaller businesses play in rural areas and fringe towns should not be underestimated.

Sarah Green FSB Communities Policy Chair

FSB research conclusively shows that smaller firms are remarkably generous in contributing their time towards the greater good within their communities.

Small businesses are agents of social change. They provide jobs, skills and training for those furthest from the labour market including young people and older workers, those with disabilities and mental health conditions, and those with low levels of educational attainment. Policy makers must recognise, reward and capitalise upon the invaluable role that smaller businesses play in supporting social mobility, wellbeing and fuller working lives. For this to be achieved policy makers must understand smaller businesses and how they promote good quality work. For example, smaller businesses often deliver flexible working through informal rather than formal processes. Small businesses can operate this way because of the personal relationships and bonds of trust fostered within their close ‘family’ environments.

The UK Government must expedite policy interventions to support smaller businesses to make real inroads into reducing the disability employment gap. Measures to support smaller firms to deliver work experience, apprenticeships and work placements (on which T-levels depend) are just as important to promote social mobility. Creating an inclusive workforce and UK economy that works for all – whatever an individual’s background and wherever they live – means reaching out to all groups that need help and support to thrive. Measures to help smaller businesses to employ ex-offenders, or to help service leavers consider the rewards of setting up their own business, have the potential to be game changers. And for certain ethnic minority groups which are disproportionately affected by unemployment, self-employment offers a chance to fulfil their potential, either in of itself or as a route into employment. We should not underestimate the power of inspiration and role models and we need a business support system that capitalises upon this.

Why does this matter? Because now more than ever we must find what binds us together, rather than what divides us. It’s the right thing to do, but it also makes economic sense. After all, boosting productivity is as much about diversity, flexible working, job design, employee engagement, and promoting wellbeing, as it is about infrastructure and digital technologies.

Community engagement

How small businesses have contributed to their local communities regionally.

Contribute

80% of FSB members have contributed to their local community or charity in the past three years

Flexible working

89 of Small Businesses offer some form of flexible working

Disadvantaged groups

95 % of small employers have taken workers from disadvantaged groups.

Older workers

...have at least one worker aged over 50

Work experience

41% of small businesses offer work experience.

Direct action

Small businesses donate time and skills to their communities

Executive summary

Smaller businesses are very often the heartbeat of their communities up and down the United Kingdom, but more needs to be done to understand the exact nature of their contribution, beyond the products and services they provide as part of their day job. The UK Government’s vision is one of better connected communities, more neighbourliness, and businesses of all sizes, which together strengthen society. This report demonstrates the extent to which small firms support and contribute to solving a number of challenges faced by our local communities. In it, we share insights gathered through in-depth survey work and qualitative evidence, collected from interviews with FSB members.

This report is split into five parts. The first section explores how smaller businesses contribute to their community and how they can be supported to do even more. The second part of this report focuses on smaller businesses as employers of labour market disadvantaged groups. Part three focuses on smaller businesses’ contribution to ‘Good Work’, for example in offering flexible working. Part four explores the issues many smaller businesses face in relation to the health of their employees. Finally in the spirit of supporting inclusivity, the final part of this report focuses on how service leavers can be encouraged to explore the opportunities and rewards provided through being self-employed.

Contribution to communities

FSB research found that small business community engagement is extensive across the country, with 80 per cent of FSB members stating they have volunteered and/or contributed to a local community organisation or charitable cause in the last three years. Our evidence suggests that small firms create strong civic engagement networks, which may help to foster greater trust within communities and, as a result, encourage more people to work together to help the community as a whole.1 Despite their day-to-day pressures, many smaller firms are committed to utilising their resources, skills and time in giving back to their local community.

In addition to the direct costs of new regulatory requirements for smaller businesses, policy makers must ensure they fully consider the indirect opportunity costs associated with any additional administrative burdens (for example as a result of tax and regulatory changes). Time spent trying to implement poorly designed or not well understood regulation takes away from the time that smaller businesses can spend contributing to their community.

Labour market disadvantaged groups

For communities to thrive, the 16.3 million people employed within small businesses must also thrive. The agility and adaptability of small firms means they are not only able to provide effective business ‘in-kind support’, such as donating resources to community organisations – especially in hard to reach areas – but they also act as a gateway into employment for those furthest away from the labour market. This includes people with disabilities, those with low levels of educational attainment and older workers. As the proportion of workers aged 50 and over continues to rise, so does the number of older workers employed in small businesses.

Unemployment is at record low levels, but we are far from real ‘full’ employment. The UK Government has the opportunity to fulfil the Conservative Party manifesto (2017)2 promise to incentivise small businesses to employ the most labour market disadvantaged people in our communities, by offering firms a one-year Employers National Insurance Contributions ‘holiday’ when they recruit from these groups.

Good work and work and health

Smaller businesses need greater support to enable them to contribute even more to the Good Work agenda and overcome challenges related to work and health. This is particularly important with regard to the employment of older workers and people with disabilities. Small businesses require a range of measures to assist them throughout the employment life cycle. The top three interventions small businesses would find helpful to employing staff are:

  • Employer National Insurance Contributions holiday for one year for employing labour market disadvantaged groups
  • Access to funds for workplace and non-workplace learning
  • Ability to Reclaim Statutory Sick Pay (Percentage Threshold Scheme was abolished in 2014)

To realise the Good Work agenda for all workers, policy makers must focus on supporting smaller businesses to deliver on the ‘3Rs’, recruit, retrain and retain. This reports sets out various interventions which would help smaller businesses to achieve this.


1 Office for National Statistics, Social capital in the UK: May 2017.

2 Forward Together: The Conservative Manifesto 2017.

Key findings

Community

  • 80 per cent of FSB members have volunteered and/or contributed to a local community organisation or charitable cause in the last three years. Of those that have, the most common ways to contribute are by donating their time (38%) and providing skills, resources and mentoring (32%).
  • 27 per cent of FSB small businesses hold a position within their local community.
  • 42 per cent of small businesses engage with schools, colleges and youth organisations.
  • 41 per cent of small business employers offer work experience either as part of the recruitment process or through their community outreach.

Employing labour market disadvantaged groups

  • 95 per cent of FSB small business employers have employed at least one worker from a labour market disadvantaged group in the last three years, some of which include those:
    • Aged 16-24 (58%)
    • Aged 50 or above (78%)
    • With a known disability or mental health condition (30%)
    • With low levels of educational attainment (34%)
    • With English as a second language (24%)
    • Labour market returners (23%)

Good Work and flexible working

  • 89 per cent of FSB small business employers offer all or some of their staff flexible working arrangements, including:
    • Flexi-time or staggered working (63%)
    • Reduced working hours (61%)
  • Of those that have flexible working, 71 per cent recognise the benefits this has had, including:
    • Reduction of staff absences (44%)
    • Creation of new business processes (44%)
  • Additional business cost savings (39%)
  • Of those that offer flexible working, 36 per cent say that providing staff with greater autonomy led to the creation and/or development of a new product.

Work and health

Disability and mental health

  • 11 per cent of FSB small business employers have at least one worker with a disability and 19 per cent employ at least one person with a mental health condition.
  • Those that do are much more likely to provide flexible working to all staff (80% compared to 69% for all small employers).

Managing sickness absence

  • 27 per cent of FSB small business employers have experienced short term health absences, 30 per cent have reported employee sickness lasting at least four consecutive days.
  • 34 per cent say sickness absence has cost more than £1,000 in the last 12 months. For those that employ over 65s, this figure rises to 41 per cent.

Occupational health

  • 10 per cent of FSB small business employers offer occupational health support.
  • 41 per cent say they do not know enough about occupational health.

Recommendations

Part 1: Supporting communities

UK Government should:
  • Deepen its understanding of the social impact of smaller businesses in their communities. The extensive work of small businesses in their communities must be a central factor in the development of the small business policy framework, i.e. the formation of policies on issues such as tax, regulation, education, local government and infrastructure. Government must recognise the wider social impact of small businesses – beyond the economic – in tackling key societal issues such as ageing demographics, loneliness, wellbeing and social mobility.
  • Ensure there is a small business champion on the Responsible Business Leadership Group. Small businesses are embedded in their communities, trusted by local people and are there for the long term. Government must work to better understand the role that small businesses play, to better inform its place-based approach to the Industrial Strategy, the Inclusive Economy Partnership, the Civil Society Strategy, and Integrated Communities Strategy.
  • Explore the potential for ‘Community Zones’ (following the model of Enterprise Zones). For small businesses operating outside urban centres and business hubs, the costs of doing business are often greater due to poor infrastructure, cost of transport and lack of economies of scale. However, these small businesses have a significant social impact and support their communities to be more resilient. Government must recognise the challenges these businesses face and, equally, celebrate the critical role they play.
  • Carry out a feasibility study for an online tool to promote understanding of the Social Value Act, working closely with stakeholders. The online tool could be used to educate commissioners and smaller firms about what can constitute social value within the context of the Act (without being overly prescriptive) and help to create a level playing field across public procurement. It should also include a self-audit tool to support smaller businesses to understand their social value maturity within the context of the Social Value Act.

Part 2: Supporting labour market disadvantaged groups

UK Government should for:
Labour market disadvantaged groups
  • Introduce a one-year Employer National Insurance Contributions holiday for smaller businesses employing labour market disadvantaged groups. UK unemployment is at record lows, but we are far from ‘real’ full employment. The NI holiday would fulfil the Conservative Party manifesto promise to incentivise small businesses to employ the most labour market disadvantaged in our communities.

Young people

  • Reintroduce the principle of compulsory work experience, allowing for flexible models that work for smaller businesses. The end of compulsory work experience in England in 2012 for students at Key Stage 4 was arguably detrimental to the employability of young people and the education to employment transition. Head Teachers and Career Leads must have the freedom to engage with smaller businesses in their community (perhaps via Career and Enterprise Company Enterprise Advisors) to develop appropriate work experience and, more generally, employer touch point models that are tailored to the needs of the local community. If the principle of compulsory work experience cannot be introduced, at the very least statutory guidance to schools and colleges should be revised to include a “right to be offered” a substantive work experience placement at Key Stage 4.
  • Support smaller businesses to take on apprentices. Government must make the 20 per cent off-the-job training work for smaller businesses, including those in rural areas and fringe towns.
  • Incentivise smaller businesses to deliver work placements by matching the industry placement fund for providers of T-levels with a fund for small employers. Work Placements are an integral part of T-levels but the 45-day work placements are a significant burden for small employers. The UK Government must provide clear financial incentives and guidance to enable small businesses to provide these work placements – especially those in rural, coastal and remote communities.
  • Supporting employer engagement. The Department for Education (DfE) should extend eligibility for travel bursary funding to young people under the age of 16 to help them access a wider range of local employers. DfE should publicise the fund and ensure that information about eligibility and the application process is communicated clearly to young people and those supporting them. It should commit to communicating this via schools, colleges and the redesigned National Careers Service website. The Careers and Enterprise Company, which has recently joined the Skills Builder Partnership, should work closely with organisations such as FSB to achieve the ambition of increasing the number of Enterprise Advisors from 2,000 to 4,000. A variety of communication channels must be utilised to reach smaller businesses including through the use of existing civil and community organisations. The merger between SkillsBuilder and the Careers and Enterprise Company will allow for a shared language and outcomes.

Higher Education 

  • Promote the Small Business Charter (SBC). To support this ambition, more must be done to promote the Small Business Charter award, which gives recognition to business schools that play an effective role in supporting small businesses, local economies and student entrepreneurship. 
  • Build bitesize learning into the design of management and leadership training. Smaller businesses may benefit from more of an escalator approach, whereby their initial financial and time commitment is relatively low. If they see benefits from the training, they are then in a position to be able to ‘ramp up’ and buy the second round or module of training. This should be taken into consideration by policy makers who are designing leadership and management training, following the announcement of an additional £11 million of funding by the Chancellor in the Autumn of 2018.3

Older workers

  • Target the mid-life MOT on those most in need. The mid-life MOT has the potential to benefit the self-employed in assessing their skills levels, evaluating their health and wellbeing, and planning ahead for retirement. The mid-life MOT has the ability to link current and proposed policy interventions, such as a £10 million training pilot in Greater Manchester with occupational health support. For the mid-life MOT to help those most in need, the Department of Work and Pensions (DWP) should initially focus on a targeted messaging campaign highlighting the benefits of a MOT to specific sub-groups of the self-employed and workers. Government should commit funds to extend the pilot amongst the self-employed and small firms. There should be a continuation of investment to support face to face or telephone advice support, as an investment in an online resource alone will not act as a sufficient intervention. This will benefit small businesses that do not have access to HR support.

Ethnic minorities

  • Introduce a dedicated scheme to help ethnic minority-led businesses to access external finance. Alongside awareness-raising, a dedicated scheme – similar to the now defunct Aspire Fund – would help more ethnic minority-led businesses access the finance they need to grow. A scheme targeted at women from certain ethnic minority groups could make a real difference.
  • Create effective mentoring circles for ethnic minority women who have experienced long-term unemployment and who may have English as a second language. This should be rolled out across the JobCentre Plus network, similar to the current initiative for ethnic minority youth jobseeker plus claimants. Role models can play a powerful role in inspiring individuals to seriously think about self-employment.

Ex-offenders

  • Provide a one year Employer National Insurance Contributions holiday for small businesses employing an ex-offender. This will not only act as an incentive for smaller firms to recruit more ex-offenders, but will also enable smaller firms to deal with some consequences which may arise from hiring an ex-offender, e.g. an unforeseen absence from work to resolve housing issues. It would also support small business employers to upskill ex-offenders.
  • Enhance the New Futures Network scheme. The New Futures Network Scheme should leverage and enhance the good work of charities, to help provide ongoing support to exoffenders in employment.

3 HM Treasury, Budget. 2018

Part 3: Supporting Good Work

UK Government should:

  • As part of the statutory evaluation of the right to request flexible working in 2019/20 deepen its understanding on the ways in which flexible working is secured in smaller businesses.4 The review, proposed by the Department for Business, Energy and Industrial Strategy (BEIS) in 2019/20, should seek to better understand the nature of flexible working offered by smaller businesses. In particular, the review must not lead to legislation that creates unintended consequences in relation to the ability of small businesses to offer flexible working through informal means.
  • Promote new-to-firm innovation amongst smaller businesses to support flexible working and support the development of digital skills. There should be a particular focus on the adoption of digital technologies, the development of digital skills, and the enhancement of management and leadership capabilities.

The Industrial Strategy Council should:

  • Ensure that the measurement of flexible working, as part of the measuring Good Work agenda, contains metrics designed to capture the informal ways in which flexible working is agreed within many smaller businesses. FSB agrees that the measurement of good work is important. We support the Government’s decision to request that the independent Industrial Strategy Council provides further advice on how best this can be achieved, building on the work led by Matthew Taylor.
  • Ensure the self-employed are not excluded from the commitment to measure the quality of work. The daily experience and expectations of work for self-employed people often differs from those in employment. The nature of self-employment can increase the risk of loneliness and exacerbate existing mental health conditions, for example due to the fear of ill health or cash flow volatility. Therefore, FSB welcomes the commitment in the Measuring Good Work: The final report of the Measuring Job Quality Working Group to include, in a relevant way, the self-employed in the measurement of good work and the drive to improve the quality of work.5

4   HM Government, Good Work Plan, December 2018, available at https://assets publishing service gov uk/government/uploads/system/uploads/attachment_data/file/766167/good-work-plan-command-paper pdf 

5     Measuring Good Work: The final report of the Measuring Job Quality Working Group (2018) 

Part 4: Supporting work and health

UK Government should:
  • Continue to promote Access to Work. This should include awareness raising and myth-busting. For example, many businesses are not aware that micro and small businesses (less than 50 employees) are exempt from employer contributions to Access to Work. In order to improve Access to Work further, Government should act to ensure that processing and payment times are reduced, making it possible to claim for employer and staff time in both processing the application and providing reasonable adjustments.
  • Create a new level 4 within the Disability Confident Scheme. A new level 4 should be created where accreditation depends on achieving actual job outcomes. This would enable small businesses with a proven track record in the recruitment, progression and retention of employees with disabilities to claim recognition at level 4. The current levels 1 to 3 can disadvantage smaller businesses because they rely more on the measurement of processes and procedures.
  • Introduce a one-year Employer National Insurance Contributions holiday for smaller businesses employing people with disabilities and with mental health conditions. UK unemployment is at record lows, but we are far from real full employment. A one year NI holiday would fulfil the Conservative Party manifesto promise to incentivise small businesses to employ those furthest from the labour market.
  • Support small firms in delivering a phased return to work through Statutory Sick Pay, on a voluntary basis. More broadly SSP should be reformed to incentivise employers to engage in good practice in helping their employee return to the workplace. Government should consider revising existing legislation so that the operation of SSP does not dis-incentivise employers who are doing the right thing by enabling their staff to return to the workplace at a time that suits both parties. The Percentage Threshold Scheme (PTS) should be reinstated, perhaps through a model that links PTS support with small firms who can demonstrably show good practice in helping employees return to the workplace, for example through a phased return to work. This would send a clear message that Government is willing to help small businesses support their staff, and to embed best practice. A significant proportion of employees within small businesses work on a part-time basis (37%). If a phased return to work is to be incorporated into SSP, it must be easily incorporated for those who work part-time and for those who work flexibly. Engaging employers in a return to work plan is essential as they need to be directly involved as only the employer will know what is or isn’t possible in their workplace.
  • Explore the potential for tax breaks to incentivise occupational health within small firms. This would encourage smaller businesses to pay for occupational health and may, in turn, ease the burden on an under-pressure NHS. Such an incentive may lead to increased output, efficiency, employment and productivity.
  • Provide specific support for smaller businesses to access the occupational health market. The occupational health market is fragmented and very difficult to navigate. Government should further consider how to improve the awareness and knowledge of occupational health and occupational health products by improving advice (perhaps through an advice line), accessibility (perhaps through a portal) and support both at a national and local level.
  • Implement better occupational health through supply chain pilots. These pilots should focus on scalable interventions that incentivise larger companies to provide access to occupational health for smaller businesses within their supply chains. Supply chains can play an instrumental role in improving access to occupational health within small firms. A smaller business could benefit from access to the resources, support and training that larger companies may have available to support staff with a disability or mental health related issue.
  • Provide dedicated funding for self-employed occupational health pilots. These pilots should focus on scalable interventions to support the self-employed to access occupational health and to provide a cash flow during a period of ill health. The self-employed in particular lack access to occupational health services. Many are left vulnerable when they find out the NHS does not provide help in this regard. The UK Government should support the development of self-organising models (e.g. Bread Funds) where the self-employed are able to come together under the umbrella of a legal structure, i.e. where an organisation is specifically created to enable the self-employed to cooperate to enable them to access help and support in the event of ill-health.6

(6) RSA, The Self-Organising Self-Employed: Empowering grassroots collaboration in the new Economy, available at https://www.fsb.org.uk/docs/default-source/ fsb-org-uk/self-organising-self-employed---final.pdf?sfvrsn=0.

Part 5: Supporting service leavers

UK Government should:

  • Promote the benefits of self-employment to service leavers. This can be done through ensuring clear and coherent information about self-employment and its benefits and risks is included in the career guidance offer provided to service leavers by the MoD’s Career Transition Partnership (CTP). Government should also ensure that support is offered on a longer-term basis. This is because many service leavers often shift to self-employment some time after leaving the armed forces.7

(7) Lyonette, C., Barnes S-A and Owen, D. Self-employment and the Armed Forces Community. 2018.

 

Further details on each of the above recommendations are provided in the full downloadable report below.