The publicity from the credit crunch has, for the past few months, concentrated on the demise of big firms and big industries. Retailers like Woolworths and Zavvi are no more and the banking and motor industries are being propped up by the taxpayer.
What then of small businesses, who don’t have the backing of shareholders and are at the mercy of the banks, footfall in town centres, the solvency of any businesses they supply and the overwhelming power of big business?
The Government has so far pledged to guarantee some loans to small businesses but this will not help when credit is so difficult to come by in the first place and considering the fact that further borrowing cannot ultimately resolve cashflow issues.
Businesses that may have been making a tidy profit before the recession may now be considering laying off staff or downsizing their operations just to break even. At worst, businesses will close and the Federation of Small Businesses has forecast that over 33,000 will close nationwide in 2009.
Government should not be used to wholly subsidise private industry, nationalising risk while not reaping the benefits, as appears to be happening with the banking industry. Government does, however, have a duty to act where it can to support business and prevent unemployment and bankruptcy, which will be far more costly to the economy and society in the long run.
With over half of the private sector work force in small businesses, something must be done to keep the sector intact. The struggle to keep as many small businesses open as possible is, unfortunately, being subordinated to the rather perverse dialogue that exists between central and local Government; as is all too often with the Labour Government, the localising rhetoric we occasionally hear from Whitehall has been soundly crushed by the urge to centralise.
Local Councils have the power and discretion to do an awful lot for their local communities-they could reduce business rates to zero, they could make parking free across the whole area, they could provide a wealth of support, technical assistance and guidance.
Most councils, especially in areas like the South West, are providing assistance. Plymouth and West Devon are reducing the time it takes them to pay invoices, Devon Countyand Mid Devon are providing excellent workshops and advice clinics. There is only so much this can achieve though-the real help businesses need has been placed just out of councils’ grasp; there just is no incentive for them to directly back small local businesses. In financial terms, local authorities are seemingly punished by Central Government if they strive to support local businesses and keep people in employment.
Any reduction offered in business rates costs the local authority-it has to submit all business rates to central Government and Central Government will demand the full assessed rate even if a discount has been given.
Many businesses have told me the high level of business rate is crippling and a slight reduction could make all the difference-asking the Government for a reduction gets the answer that it a discretionary matter for local authorities. Asking local authorities prompts the response that there is no money to do so.
The cost of businesses closing and jobs being lost is far higher to the taxpayer-there is the loss of tax income and the cost of housing benefit, council tax benefit, income support and so on. This all dramatically adds to the tax burden, raising the level of borrowing by Government.
The splitting of budgets between local and central, and the way they interact, makes both arms of the state very protective of their own pots of money. Councils across the UK have to cut services from libraries to weekly rubbish collections to maintain their budgets and Government spends billions on schemes that most voters have never heard of.
In real terms, the benefits to helping businesses stay solvent and retaining jobs are immense, especially when so many can be saved by a relatively small financial consideration-a modest business rate cut to those most in need or an incentive to bring shoppers into the area could make the difference. Add this to supporting a buy local campaign and the road map out of recession becomes a real possibility.
Supporting businesses is not seen as a primary function of local authorities, even though the relevant powers have been given to them, and any spending lavishly on this cause are seen to be doing well and have their budgets cut by Central Government in future years.
Conversely, areas with low total business rate income and high unemployment get more money from Central Government. Westminster council for example collects over £1billion of business rate each year, but loses over 80% to prop up the finances of areas with fewer businesses. Individuals with no income or savings can receive a full council tax rebate-this is paid by Central Government to councils and perversely the more unemployment, the better the council’s collection rate for council tax becomes-it is a guaranteed income with no need for enforcement.
If councils were shouldered with more of the risks, as well as the powers, finances and responsibilities of the local economy, they may respond better to local needs especially in the face of recession. As it stands they are often seen as toothless; here in Torbay the setting of the council budget, most of which is pre-determined by the services Whitehall tells it to provide, seemed to focus for a long time on the £50,000 or so needed to provide the ceremonial mayor with a car. Hardly the high priority issues we would like our councils to tackle.
What then can be done?
In the short term political will at local level can make a difference if inventive solutions are explored.
Free or cheaper parking, a tidy street environment and a positive community spirit are areas that could be explored. In Torbay, this sort of modest support still needs to get going. There is discounted parking but it is not being publicised; similar publicity for a buy local campaign will also help. Councils must also ensure that business rate relief is in place for the most needy. Torbay Council has reserves for a rainy day and the recession will soon become a monsoon. These reserves need to be put to better use to stop businesses and jobs being lost.
Ultimately it is a question of money, political priorities and good local leadership. Councils need to be given the funds and the trust by Government to act in local economies to the benefit of the community. So far Labour has made much of the rhetoric of local autonomy and local democracy but it is yet to back this up with the fundamental reforms that could free councils from the ethos that has been foisted upon them by Whitehall.
Instead of a miniscule VAT rebate, which cost the Government far more than it will benefit the economy, the relationship between Local and Central Government needs to be re-assessed so that both have the power and incentive to support small businesses to the full. In the meantime, positive and practical leadership in local government needs to give a lead.
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