2011: A YEAR FOR GROWTH
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2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
NOW IS THE TIME FOR A RADICAL GROWTH AGENDA by David Frost CBE BCC Director-General
here has been much talk about what could be done to stimulate growth. The business community I represent has said repeatedly that it will work together with Government, and with local authorities across the country, to ensure that our economy begins to move forward. The blame game perpetuated in much of the media has been an unwelcome distraction. It is now time to make sure that an agenda for growth is put in place at national, regional and local level. We must focus on delivering the right conditions for businesses to prosper, on developing innovative ways in which the private sector can drive economic expansion, and on assisting the public sector to restructure the way it works, and the way it thinks. I believe the BCC is uniquely placed to take the lead in identifying obstacles to growth - via our nationwide network of 53 accredited Chambers of Commerce, 100,000 member companies, and over five million employees - and in overcoming them using the expertise and the knowledge which the Chamber of Commerce movement has accumulated over the years.
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We have dubbed 2011 the ‘Year for Growth‘ because we believe the months ahead are absolutely crucial to Britain’s recovery and its future.
No other business organisation has our geographic spread or our presence at the heart of each local community. With a front door in towns and cities across the country, the Chamber movement provides valuable insights into the mindset of employers, both large and small, throughout Britain. We know what makes companies different and special, but we also know the strategic issues which matter to them all, such as employment legislation, the planning system, pensions reform, and access to external finance. Our forerunner - the Association of British Chambers - was founded in 1860, because business groups in major provincial centres, such as Belfast, Birmingham, Edinburgh, Glasgow, Leeds and Manchester, recognised that their voice needed to be heard in London, and in Parliament. Since then, we have evolved into an organisation which represents, guides and advises its members - both directly, and through our individual Chambers - whilst also working to shape the policy decisions taken by the Government of the day. Today, we continue to deliver that historic role; as our members help us identify the barriers to growth, and as we work to ensure these barriers are removed. Yet we are also a distinctly 21st century organisation, working to develop new insights, technological solutions and linkages that help members take advantage of new global markets. Companies can only operate successfully against a backdrop of certainty, whether they are quoted PLCs with global ambitions, or small businesses serving a scattered rural community. That’s why many welcomed the
pro-growth message of the Coalition Government when it came to power some eleven months ago. Since then, however, we have witnessed more rhetoric than substance. On behalf of our members, we have expressed concern about the direction of a number of policies. Policy must be crafted to encourage directors, investors, shareholders, or owner-managers to feel confident about economic recovery. Costly changes in employment legislation, the introduction of ‘localism’ as our planning system’s new watchword, complex new bribery legislation and the impacts of pensions reform are among the issues where we share our members’ concerns. Such issues are especially important to the small and medium-sized businesses (SMEs), who are the backbone of our nation’s economy, and who generate roughly half of our GDP each year. One of our biggest challenges during 2011 will be to convince senior politicians, from the Prime Minister downwards, to think ‘small’ and ‘medium’ before they think ‘plc’. There are tremendous opportunities ahead for us, as a business nation. I am optimistic about Britain’s prospects, but we first require the correct structures for growth. A radical agenda for growth must be put in place that accompanies the raft of cuts being made to restore our public finances to health. However, I am confident that, together with Chambers and their members in every corner of the UK, we will make the case for growth, and ensure that the companies which form the backbone of Britain’s economy become the engines of its future prosperity.
2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
David Frost: David has been Director General of the British Chambers of Commerce since 2003. The BCC promotes the interests of British business and represent the interests of the Chamber of Commerce Network. David also oversees BCC Enterprises, which develops a range of commercial activities which benefit Chambers and their members. This year, David received a CBE for his services to business. Karen Clements: Karen advises the BCC policy team and Chamber members on policy developments at EU level that affect Chamber business members. She provides strategic and lobbying advice, as well as training on EU institutions for BCC and Chamber staff and represents BCC on EU related matters in Whitehall and Westminster. Steve Hughes: Steve works on all aspects of tax policy and regulation policy. He works on economic policy more broadly with the BCC’s Chief Economist, David Kern and is also responsible for the BCC’s survey work, such as the Quarterly Economic Survey and Monthly Business Survey. Anne Tipple: Anne works with local chambers assisting them to develop a relevant training and skills offer for their business community. She also listens to the skills needs of employers and seeks their reactions to Government skills policies. The Chamber Skills Practitioners Group is organised and chaired by Anne. Gareth Elliott: Gareth is a Senior Policy Advisor at the British Chambers of Commerce and leads the organisation’s infrastructure and planning campaign. He is also responsible for policy on transport, environment, energy, and Business Crime. He previously spent two years working in corporate affairs at GlaxoSmithKline plc, coordinating their research and lobbying activities with Government, parliament and other organisations and leading work on securing intellectual property rights and opening up access to anti-retrovirals to sub-Saharan Africa. Gareth is a graduate in politics and history at the Queen’s University, Belfast and a master of science at Birckbeck College, University of London.
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Adam Marshall: Adam is Director of Policy and External Affairs at the BCC, and manages the business policy team in London. Adam and his team lobby the Government and policymakers to ensure the voice of British business is heard at a national and local level. He also represents the BCC to external stakeholders, Chambers and the media.
David Frost CBE
Abigail Morris: Abigail has been a Policy Advisor at the British Chambers of Commerce since February 2008 and leads the organisation’s policy work on employment and pensions. Recent publications that Abigail has worked on include ‘Employment Law: Up to the Job?, which makes recommendations to reduce the burden of employment law and reform the employment tribunal system, and ‘Pension Reform: Limiting the Squeeze on Business,’ which analyses business reaction to the 2012 reforms. Abigail has a Law degree from the University of Birmingham and an MA in International Political Economy from the University of Leeds. Originally from Leeds, West Yorkshire, Abigail currently lives in North London. David Riches: David manages the development of commercial services for the BCC, as well as evaluating other business development opportunities for the Chamber network. In this position David liaises with the Chamber network regarding the services required, as well as working with a range of commercial partners in the delivery of these. David is based in London, but splits his time between London and Coventry where the Business Development team is based. Kieran O’Keeffe: Kieran heads the BCC’s Brussels Office. He advises BCC on EU policy and legislative change affecting the Chamber Network and its members. He is also responsible for development of EU strategy and lobbying in Brussels. Kieran manages BCC’s relationships with Chambers of Commerce in other member states and with the BCC’s European association, Eurochambres.
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‘2011: A Year for Growth’ is produced on behalf of the British Chambers of Commerce. Open Box would like to acknowledge all of the help given by the team at the British Chambers of Commerce and express their thanks for all their support. ‘2011: A Year for Growth’ has been designed and produced for you by:
01 NOW IS TIME FOR A RADICAL GROWTH AGENDA 05 CAMPAIGNING FOR A BETTER DEAL FOR BUSINESS 10––11 REGULATION MUST NOT BECOME BARRIER TO RECRUITMENT 14––15 BUSINESS DEMANDS A PRO-GROWTH PLANNING PROCESS 18––19 TRUST IN BANKS COULD TAKE YEARS TO REPAIR 22––23 INVESTMENT IN PEOPLE IS CRITICAL 26––27 PRESENCE AT HEART OF EU IS VITAL IF WE ARE TO PROSPER 30––31 ACME SHOWS JUST WHAT SMES CAN ACHIEVE
Open Box 32–35 Hall Street Jewellery Quarter Birmingham B18 6BS +44 (0) 121 608 2300 www.ob-mc.co.uk Stuart Walters email@example.com Samantha Skiller firstname.lastname@example.org Edited by Ian Halstead email@example.com NB: The publishers wish to emphasise that the opinions expressed in this publication are not representative of Open Box and accept no responsibility for the views expressed by our contributors.
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2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
CAMPAIGNING FOR A BETTER DEAL FOR BUSINESS INTO THE BLACK.
by Dr Adam Marshall BCC Director of Policy and External Affairs
o far, the Government has received our agenda for growth well, but now we must see delivery, and not simply hear encouraging words. We are determined to hold the Coalition to account on issues of critical importance to Chambers of Commerce, and their members. Throughout 2011, we will campaign hard for the Government to put the UK’s long-term growth and prosperity above short-term politics, and for ministers to commit to fiscal and regulatory reforms which make it easier for businesses of all sizes to thrive and expand. We all know that the barriers facing companies are real, and they are substantial. Britain’s largest and most successful
Our Year for Growth campaign is about much more than mere rhetoric. During the months to come, we will make detailed proposals for changes in Government policy - and target the obstacles which prevent many companies from realising their potential.
companies are better placed to address day-to-day obstacles to growth; because they employ full-time HR staff, have strong internal support structures, and can easily access capital markets for finance. However, as many Chamber members know from personal experience, it is so much harder for small and medium-sized businesses (SMEs) to cope when new and complex legislation is introduced, especially when they are already entangled in reams of red tape. So there’s a need to roll back existing bureaucracy, and to ensure that new laws do not have a negative impact on businesses. Alongside a laser-beam focus on growth, we must never let ministers forget that 98% of Britain’s companies are SMEs,
who need the right environment to hire new staff, expand their premises, invest in new equipment, or grow their business overseas. Nowhere is it more important for such companies to have the right kind of support, and structures in place, than in export markets. Existing exporters must be encouraged to increase overseas sales, and those companies relying on domestic demand must be stimulated to access new markets. We surveyed BCC members earlier this year, and of the 8,000 businesses who responded, just over two-thirds - 68.5% were not exporting, and had no plans to do so. The British economy has relied on overseas trade for centuries, but the feedback we are receiving is that the present economic
2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
conditions have made many companies more risk-averse, with many unable, or unwilling, to even look outside domestic markets. The Chamber movement is playing a key role in changing that mindset, by offering first-time exporters the chance to be mentored by experienced players, and through the classic route of specialist seminars and networking events. However, we also see areas for short-term improvements by the Government and its overseas trade arm, UK Trade & Investment. Firstly, the UK must do more to offer trade finance and trade credit insurance to SMEs wishing to enter overseas markets. For too long, our offer has been slim compared to that available in such trading rivals as Germany, Canada, the Netherlands and the USA. We’ve convinced the Government to introduce new schemes for SMEs, but more must be done so the UK’s exporters aren’t starting at a competitive disadvantage. Secondly, whilst we understand that the Bribery Act is well-intentioned, it is causing huge concerns for many companies. Some say it will have a ‘chilling effect’ on their export intentions, because they fear the legal consequences of unintentional mistakes, or of the actions of an agent operating on their behalf in new markets. The Government must explain to such companies how the legislation will work, and reassure them that they will not face onerous new regulatory obligations. Such proposals - with new and complex impacts on the business community - cannot be subsumed into an ill-conceived Government marketing freeze, or business confidence will suffer. Thirdly, we need as a nation to do more on trade promotion. From identifying new overseas markets for our products and services, to removing the barriers that prevent British companies from competing effectively, the UK’s offer must be comprehensive, muscular, and global in reach. Trade promotion activity is as important to the future of the UK economy as a successful NHS is to the nation’s health. We welcomed Lord Green’s appointment as minister for trade and investment. Now, we want to work with him to ensure the correct support resources are in place to assist exporters. We already
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spend much less promoting overseas activity than our main trading rivals, to the detriment of our economy, although it is a tribute to our business community that we remain one of the world’s largest exporting countries. However, let’s not forget that the Netherlands and Belgium - whose combined population is less than 30 million - give the UK a run for its money on exporting. That puts our current ranking in a rather different perspective, and underlines how far this country lags behind in offering support for exporters. We welcomed the Trade White Paper’s proposals on export financing and export credit insurance, but more must be done to reduce competitive disadvantages. The BCC will continue to lobby hard to ensure that the proposed new mechanisms and initiatives will make a
At home, we have major concerns about the planning system. It has long been accepted that the current structure is too slow, too confusing and too inconsistent. genuine and positive difference. At home, we have major concerns about the planning system. It has long been accepted that the current structure is too slow, too confusing and too inconsistent. Change is certainly needed, but ’localism’ offers both opportunities and risks. Whilst the new concept appears to give local companies the chance to have more of a say about planning decisions in their area, some proposals being considered appear to legitimise those forces which are resolutely anti-growth, and anti-development. The Government wants the private
sector to deliver millions of jobs. How can businesses do this when the planning system is in constant upheaval, and when they fear this latest approach to planning will not reflect their interests? We are currently campaigning fervently to ensure that the Localism Bill does not empower the forces of NIMBYism and the status quo. We will also work hard to ensure the new structure is more efficient than the system it is intended to replace, giving the business community a defined role to play in major planning decisions. The BCC has long been at the forefront of efforts to reduce the negative impacts of regulation on business performance. We regularly articulate our concerns to Government - and declare victory, quietly, when poorlyconceived ideas are dropped. That said, we have significant concerns about several upcoming proposals. Before the 2010 general election, business was promised a ‘One In, One Out’ policy for regulation; that meant a piece of red tape that imposed costs on businesses would have to be repealed for every new item. It was an innovative idea, intended to appeal to business, and especially the owner-managers of SMEs. Unfortunately, the system is operating poorly. Whitehall officials are ‘gaming’ the system to get ministers’ pet regulatory projects through, and the overall cost burden on businesses continues to rise. More damagingly, we see proposed changes ahead - shared parental leave, autoenrolment in compulsory pension schemes, extended employee ‘rights to request’ and reductions in companies’ ability to manage their workforce - which are confusing, will cost billions of pounds in the short-term, and are most definitely not business-friendly. There should always be a balance between the rights of employees, and the needs and requirements of business. Regrettably, much of the proposed new regulation will tip the balance even further in favour of employees to the detriment of the employers who create jobs. We need urgent recognition that the business community should not face new obstacles to growth, and to see equilibrium restored. As a Chamber movement, we will continue to urge the Government to live up
to its pre-election promises, and to deliver a lighter regulatory touch, especially during such challenging economic conditions. Infrastructure is another critical issue affecting business’s ability to drive growth. Whilst we welcome the Coalition’s decision to avoid immediate cuts to such spending, and its commitment to such major projects as High Speed 2 and Crossrail, the country’s existing roads, railways, airports and ports must be maintained, and improved, so they can function efficiently and effectively. For far too long, Britain’s infrastructure has suffered from benign neglect. We watch on the sidelines as China and Spain lead the world in high speed rail, as French companies corner the market in the development of new nuclear power stations – thanks to decades of investment at home - and as German and Japanese train-makers win orders across the globe. However, I believe ministers have finally realised that we cannot afford to lag behind, and we welcome their new mindset. The BCC provides backing to an independent Business Infrastructure Commission, identifying what must be delivered for the country’s transport, energy and digital networks to reach competitive standards. We have offered voluble support for campaigns to increase infrastructure spending over the long-run, to ensure projects are not disrupted by political short-termism. Countries which invested in infrastructure over time have gained competitive trading advantages - notably Germany - and this will remain a key focus for us. In all business sectors, the last three years have seen many companies struggle to obtain basic finance facilities. Critically, thousands of viable and successful businesses have been unable to secure the working capital needed for growth. As with so many other areas, we have campaigned to break that log-jam, mediating between companies, banks and Government to get financial flows back on track. Where the banks have got it wrong, we have highlighted their errors. Their biggest mistake was to decimate their customer-facing management structures, and to prefer centralised decision-making over genuine relationship management.
The erosion of front-line services within financial institutions has created a crisis of confidence between businesses and lenders. We need to return to the days of relationship management, when decisions about lending to local businesses were taken locally. However, beating up the banks in the media serves little purpose. For us, the debate isn’t about big headline-grabbing lending targets, which are unlikely to be met. Instead, it‘s about ensuring lenders operate efficient, clear and consistent decision-
We watch from the sidelines as China and Spain lead the world in high speed rail, as French companies corner the market in the development of new nuclear power stations and as German and Japanese trainmakers win orders across the globe. making processes, and that they rebuild their damaged relationships with the SMEs which are the lifeblood of the British economy. Chambers of Commerce have a presence in the UK’s towns, cities and rural areas, are passionate about the success of their local economies, and are deeply involved in efforts to improve conditions for business success. Our movement is also working hard to ensure changes to local economic development structures
do not have negative effects on local competitiveness. Whether changes to business support in Wales and Scotland, a campaign to designate Northern Ireland as an Enterprise Zone, or the move away from Regional Development Agencies in England, Chambers are actively working to defend business interests. In England, there has been much debate about how the new Local Enterprise Partnerships (LEPs) will work. The RDA structure attracted both criticism and praise, but is now being wound down. The new LEP network must succeed, and the Chamber movement is perfectly placed to ensure that each local business community takes a pro-active in their operations; now and into the future. We are working closely with LEPs and the Government to break the current log-jam over the new bodies’ functions, funding, and powers. If we succeed, businesses will play a greater role than ever in shaping and driving the economy of our cities and towns. Companies want things done with them, rather than done to them, and the LEPs offer us a chance to make that reality. In conclusion, I can’t help but be optimistic for 2011. The companies I speak to across the country highlight improving trading conditions, and report rising levels of confidence, following three of the most difficult years in memory. Major challenges, such as inflation and global uncertainty, do remain, so we must continue to campaign for a Year for Growth, and for policies allowing business growth to take centre stage in town halls, in Whitehall, and in Europe’s corridors of power. The BCC has a full-time office in Brussels, fighting to ensure that MEPs, high-level European Commission officials, and key individuals in other European institutions understand the legislative priorities of British business. The Chamber movement is - and always will be - in business for business. So if you have an issue you want us to take up - at local, regional, national or EU level - we’re here to help. Together, we can deliver the Year for Growth, and more importantly, we can deliver sustainable growth into the future.
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2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
REGULATION MUST NOT BECOME BARRIER TO RECRUITMENT
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Employment issues are at the heart of our Year for Growth strategy, because we believe it is essential that the burden of employment legislation on companies be reduced if they are to create the jobs which will drive our recovery from recession.
e understand that achieving a balance between the rights of employees, and the responsibilities of employers, is not easy, but equally, there is no doubting that the present system is out-of-kilter. If job creation is to be stimulated, during 2011 and in the years ahead, it is essential that regulation is not seen as a costly barrier to recruitment. The volume and complexity of employment legislation is especially onerous for SMEs - the engine room of the UK economy. A current issue of particular concern is mooted changes to both maternity and paternity leave. We have seen six major pieces of legislation passed on this issue since 1999, and this year sees the introduction of the latest regulations, intended to be introduced in April 2011. The inevitable result is that many employers are baffled, and SMEs - who lack the in-house legal and HR resources of larger firms - can even find themselves facing claims, simply because employers were unaware that significant legislative change was taking place. Ignorance of the law is no excuse, of course, but our concern is that the Government often fails to inform employers
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of how and when they need to act. New guidance has been issued on the Additional Paternity Leave (APL) legislation but in the form of advice to pregnant women, for example - and the Government has frozen the marketing budget for the Department of Business, Innovation and Skills (BIS) meaning dissemination is difficult. We are greatly concerned that many employers do not realise that from April 6th, eligible fathers can take up to 26 weeks of additional paternity leave, if the mother has returned to work, and those companies which are aware are deeply worried about the cost implications and administrative burdens that may flow from this change. From now, fathers have to give just eight weeks notice of their intention to take leave, which we consider too short, especially for SMEs who do not have the flexibility to find replacement staff so quickly. Nick Clegg has been eager to
promote the change as family-friendly, but we think companies, large and small, will have real practical problems. We do support a more gender-neutral parental leave system, but only when the practical issues have been ironed out. On the basis that yet another new system is due to be implemented in 2015, we have campaigned for changes due before then, including APL in April 2011, to be cancelled. We see this issue as a pinch-point for the Coalition. On one side, we see David Cameron and Vince Cable promising to abolish red tape, and talking about the need for a growth agenda. On the other, we hear Nick Clegg and Theresa May pushing family-friendly policies. Our view is that the most family friendly policy is to push the growth agenda and create jobs, rather than increasing the amount of red tape which adds costs to business. Another area of concern is the number
of people permitted to request flexible working. It was extended to affect roughly 300,000 working people, and the proposal is then that from 2013, it will be extended to all employees. We fear these changes will be the catalyst for real tensions in the workplace, as employers struggle to decide which requests should receive priority, and as some employees feel disgruntled to see their colleagues working flexible hours when their request has been denied. A wider issue, of concern to us on several legislative fronts, is the validity of the case which the Government puts forward to justify its reforms. Before the 2010 general election, we heard much about the ’One In, One Out’ concept, which - in theory - meant the regulatory cost burden on business would not rise, because the impact of each new piece of legislation would be balanced by the repeal of existing regulations. Unfortunately, we have since seen Departments attempt to justify changes, by producing net cost impact assessments which are extremely favourable to their argument. On such major issues as the impact on business of the new cap on non-EU migration, and the cost of abolishing the default retirement age, the official statistics are, at best, poorly researched, and at worst, have been massaged by civil servants anxious to generate ‘outs’ rather than ‘ins’. We need to see, and as a matter of urgency, the methodology which the Government is using to make its case, to test both its validity and the accuracy of its conclusions. If the new concept functions as was promised, and as we expected, then it could be a force for good, but it must become much more than simply a votewinning mantra. We are very much in favour of regulatory impact bodies, to monitor new legislation, and issue proper costings, but are concerned that if the costs haven’t been thought through, then neither has the legislation. As always, we encourage and study feedback from Chambers, and individual companies, and another issue which is causing major concern, among not just SMEs, but for major corporates, is pensions reform.
Between October 2012 and 2016, employers will have to begin paying a compulsory pension contribution as a percentage of each eligible employee’s wages, beginning with the largest companies. We were supportive of the principles underpinning the Pensions Act, long before it came to the statute book in 2008, as we appreciate that many people need to make more provision for their retirement. However, given that employers will ultimately have to contribute 3% of each employee’s earnings, as well as the burden of administration, we feel many are ill-prepared for autoenrolment, and for the impact it will have on their bottom lines. We have spoken to many firms who are tendering for public sector contracts in particular, and - especially for those pitching for long-term supply contracts - the 3% contribution could destroy their margins, or result in them being unable to fulfill their obligations, as they did not include these costs in their tender due to lack of awareness. The feedback we are receiving from members indicates that auto-enrolment will also impact on the provision of employee benefits packages in the round, including contractual bonus payments, such as a staff canteen, subsidised travel, and other perks. It doesn’t appear that the Government has realised that many companies, faced with the compulsory 3% contribution, may wish to charge employees for benefits they currently receive for free, to defray the new charge. We also have concerns about the legislation’s requirement for employers to either choose a defined contributions pension plan, or to use the National Employment Savings Trust (NEST). We suspect that a lot of small firms will eventually take the latter route, because they won’t have the expertise to decide which plan to choose. We know our members are very concerned about choosing the right scheme for their staff, and are worried that the wrong choice could lead to liabilities further down the line. There is also a requirement for employers to register their scheme with The Pensions Regulator, and then to re-register every three years. If employees to decide to opt-out, then that process also needs to be managed
by the employer, or it could become an issue at later employment tribunals. All these requirements will be time-consuming burdens, and the changes are also effectively an admission that the stakeholder pension concept didn’t work. However, the new Pensions Bill 2011 legislation does include a few ’easements’ for employers. You don’t have to auto-enrol new recruits as soon as they start and you can wait 12 weeks, which makes sense as that will usually be someone’s probationary period, If your business works in a seasonal sector - such as tourism in summer, or retail in winter – then this easement will mean temporary workers do not need to be enrolled, although the worker could choose to opt in to the scheme. Such changes do show that lobbying the Government for business-friendly legislation, or for finetuning to proposed legislation, can pay off, and we’ll continue to fight the case for business, via our meetings with Cabinet members and senior MPs. It’s also possible to influence Parliament through questions tabled by MPs, when Ministers are obliged to explain actions and defend their policies, and it remains a useful route for ourselves, Chambers and individual companies. Not many progress to become legislation, but they do provide topics for debate on local or national issues, and are an excellent way of testing opinion. It’s also possible to make changes during the passage of a bill, particularly during the second reading, and we always urge Chamber members who believe pending legislation will impact on their business to voice their concerns to us, so we can act on their behalf. Even when a Bill is at the committee stage, and is being discussed line-by-line, we are still able to have an influence, as trade organisations and specialists will often be asked to present evidence to the committee. It’s almost never too late for us to put your views forward, so it’s very important for companies in all sectors, to stay abreast of what is happening before legislation reaches the statute-book. We’re here to fight for business, and making your voice heard in Parliament is one of the best ways we have to win the debate.
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FINANCE AND BUSINESS SUPPORT CRUCIAL TO THE GROWTH AGENDA We share the BCC’s perception that access to finance issues must be resolved, if 2011 is to become a year for growth, but it’s worth repeating that there’s a whole world of finance outside bank loans that rarely attract media coverage. Moreover, many people in the policy world still need to realise that finance does not come from nowhere. Information, control, collateral and risk are its raw materials, and the first two are the areas in which our members specialise. Small and medium-sized enterprises (SMEs) are the engine of Britain’s economy, and independent research (as well as ours, of course) consistently indicates that accountants are their preferred advisers on issues of financial management. Our recent joint publication with Forbes Insights, Rebuilding a foundation for postrecovery growth - demonstrated that expert advisors deliver tangible benefits to SMEs, and although accountants are primarily thought of as financial advisers, many have much wider skill-sets. Increasingly, our members are being asked to advise on employment matters, and other complex areas, which is why we are keen watchers of the BCC’s Better Regulation Barometer, which highlights the real cost to business of new legislation. Yet the Better Regulation pendulum has swung in past years to the point where much work accountants now do ends up being dismissed as ’red tape’. Not that they do not help SMEs with a number of compliance tasks, but these are not what accountants in practice derive most of their income from these days; rather the profession is slowly but surely migrating to the value-added role of the business advisor: ACCA refers to this agenda by the shorthand Accountants for Business. With recent simplifications such as the ones related to reporting for micro companies or small business audit, for instance, we believe that businesses will not abandon good practice simply because it is not compulsory, and that Government should not seek regulatory ‘savings’ where there is in fact no regulatory ‘burden’.
But of course it is chiefly our responsibility - and the profession’s - to make the case for high-quality financial information. One relatively neglected area of business support which we’re very keen on is guiding SMEs to become integrated into major national and international supply chains. Adopting, and adhering to, global standards is critically important to this work, and is an area where our members are really well placed to add value. It is because of this global view on SMEs’ access to markets that ACCA is so invested in Europe’s programme of market integration – the Single Market. Yet for all our faith in the concept, we must concede that it has yet to be realised. The importance of the Single Market to SMEs is sometimes even lost on the Commission itself. In one high-profile impact assessment, the EC dismissively stated that microcompanies don’t do much international work, which is bizarre, given that forty per cent of European micro-enterprises are internationally active, and many more would be, if the process was not so costly, cumbersome and fraught with uncertainty. To us, the Single Market will finally be judged a success, when policy-makers no longer have to defend it, and when ownermanagers no longer have to look it up on the internet. No one discusses the UK single market, or the free flow of goods from say England to Wales and vice versa. It just is. Domestically, an ever-present issue remains the relationship between our High Street banks, the business community, taxpayers and the government. This year, the coalition unveiled Project Merlin; trumpeted as a ground-breaking agreement with our four largest banks, on lending, bonuses and transparency. To be honest, we considered it little more than a side-show for media consumption, and a slight disservice to the constructive work government, the banks and other stakeholders are doing to improve access to finance.
To return to my original point, no-one can create a sustainable flow of finance to SMEs from nothing, not even the banks. Yes, they can improve their training programmes, learn how to better manage risk, and be regulated and overseen more effectively. In the medium-term, they should consider a return to more relationship-based business models, giving them access to the client insights they’ve lost. However, anyone who urges banks to lend on a non-commercial basis, or to businesses that politicians happen to like, is looking for trouble - in terms of undercapitalised banks and failing businesses. British taxpayers are hugely exposed to SME debt; they account for much of the risk exposure of retail banks, which we now underwrite, explicitly or implicitly - and they employ most of us. It is in no-one’s interest to increase the leverage and debt levels of SMEs to unsustainable levels. Speaking of the sector’s footprint, we recently ran the numbers in manufacturing, hoping to gain insights into this longsuffering sector. In value-added terms, manufacturing SMEs are a bigger sector than financial services, which I am sure will surprise many observers. These lean and smart businesses need guidance on how to address such issues as sustainability and their environmental footprint, and how to manage intellectual property, which is a much broader concern than simply copyright and patent issues. The SME agenda is certainly much wider and more complex than media coverage implies, as I know Chamber members are well aware.
By Emmanouil Schizas Senior Policy Adviser
2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
BUSINESS DEMANDS A PRO-GROWTH PLANNING PROCESS
ne thing is clear: Britain’s planning system is slow, cumbersome and uncertain, which increases risk for companies, and so adds to their costs. Many businesses are forced to hire consultants and advisers to guide them through the planning maze, which is an additional financial burden; a quicker and more predictable system is crucial if our economy is to deliver a growth agenda. The recent cuts in local Government funding have raised concerns among the business community, that already overstretched and overburdened planning departments may not be able to cope, further endangering the fluidity of the planning system to the detriment of businesses and developers. Feedback from our members also suggests that the quality of resource available varies and results in vastly differing interpretations of planning law across different local authorities and that in many cases, sub-standard advice is provided about how an application might progress. Our present system is so opaque that even senior planning officers admit becoming confused, so it is evident that
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Economic expansion cannot happen without an effective and efficient planning system, and a central element of our Year for Growth campaign is to ensure that the present structure is made fit-for-purpose.
reform is vital. The basic concept of ‘localism’ is certainly seductive, implying that local decision-making will replace centralised bureaucracy. However, we have real concern that the tenets of localism could take power from council planners and give it to a small minority, effectively creating a NIMBY charter. We fear that those who shout loudest often win the debate, even though they are only driven by an anti-development agenda. Another area for concern is the proposal that local referenda can be held on any issue, which would undoubtedly cause an alreadyoverloaded planning system to become even more sluggish and inefficient. Such decisions would not be binding, but planning authorities will be mandated to consider the outcome of each referendum, which could have serious implications for major development schemes, such as renewable energy projects, waste disposal plants, and business parks. Nowhere in the Localism Bill, as it was drafted, is the business community considered to be part of the process, so we are campaigning fervently to ensure that businesses have an automatic right of scrutiny, and a right of say, should an
application be made within their area. We also believe that if a company applies to build premises, or to expand, in a location where there are no council-tax payers - such as a business park or industrial estate - that it should be able to set up its own neighbourhood development plan (NDP). The legislation says that a NDP can be established by residents in an area devoid of business rate payers, it is only fair and logical that a NDP can be established by businesses, in areas without council-tax payers. Without such a change to the Localism Bill, we share our members’ concerns that the NDP concept will be used as a barrier to slow or block development proposals, but not as a means of allowing others to proceed. Another element of the legislation would see Regional Spatial Strategies (RSS) abolished, and replaced by an instruction to neighbouring local authorities that they have a ‘duty to co-operate’, which in theory will be the catalyst for a new system of crossboundary working. Unfortunately, the legislation contains no effective proposals for enforcement, and we fear that some local authorities will simply ignore the requirement.
We believe that the Local Enterprise Partnerships (LEPs) have a critical role to play on this issue, to ensure that the voice of business is heard, and that councils do not shirk their strategic responsibilities. We have already seen individual Chambers of Commerce coming to the fore in these new bodies, but it is critical that the LEPs do not simply become talking shops, and we are urging the Government to give them a formal role in the planning process Chambers will play a key role in the localism agenda, as a philosophy which brings people together to express their views on matters of local importance. However, the concept of a third party right of appeal really would skew planning decisions into the hands of the NIMBYs. We are determined that the Government recognises the force of our argument, that such appeals would not only threaten development proposals of all kinds and sizes, but would also push the planning system ever closer to breaking point. On this issue, as with all others, we are asking that a business community should be given the formal right to express its views. We are looking for a voice for business, not a veto for business. The business community was concerned when it heard that the Infrastructure Planning Commission (IPC) was to be abolished and that decision-making on major infrastructure projects will go to the relevant Secretary of State. We are concerned that this change could bring politics back into the process, and are campaigning to get this section of the legislation amended, so that a Ministerial decision, where it deviates from expert advice, is scrutinised in Parliament. We are convinced that on major long-term projects of national economic importance, such as nuclear power, new runways and motorway proposals, the decision is far too significant to be left to be left to political whim. As the LibDems and the Conservatives rightly pointed out when they were in opposition, the planning process for major infrastructure schemes has evolved piecemeal over the decades, until it has become absurdly complicated and costly. We need a more streamlined and simplified structure.
ransport infrastructure projects in particular must never be judged in isolation, as they are always linked directly to the capability and economic strength of a country, not least as they provide access to a wider pool of labour and services. In the medium-term, High Speed Two (HS2) will be important, but for now, we consider investment in our aviation infrastructure to be vital. We are a trading nation, and if we are to improve access for our exporters to emerging markets, such as the BRIC countries, then we have to upgrade our airports, however unpopular such investment might be among the shrill minority of protestors. We look into Western Europe, and see that Schiphol, Frankurt and Charles de Gaulle are expanding, but Heathrow is not, which is one reason we supported the creation of the IPC, so that a non-political body could judge our economy’s requirements over the next 30 or 40 years. Unless politics is taken out of the planning process, when major infrastructure proposals are put forward, MPs of all parties will always be tempted to think inside the five-year political cycle between general elections. Of course, the Government’s proposals with regard to planning and resources aren’t all bad. We welcome the creation of a Green Investment Bank - which can perhaps leverage £4 billion from its initial £1bn of funding - and the idea to continue expanding ‘hard-shoulder running’ projects on our motorways. The Coalition also heeded our case, when we argued that capital spending on infrastructure needed to be protected from the worst of the public sector spending cuts. However, we estimate that without the slew of public sector funding, infrastructure projects will encounter a £200bn spending gap. Nuclear energy along will soak up tens of billions, but we are also in a position where we need new railways and new renewable energy schemes, and upgraded motorways and airports. Public-private partnerships did get a bad press, after several major transport projects collapsed, but perhaps it is time to revisit that concept. We also do not believe this is the right time to drop the Private Finance Initiative, although the concept does need to be revaluated, and refocused. However, a major issue for now, and the future, is increasing the involvement of the major institutional investors and pension funds in our infrastructure schemes. Their combined current investment level is barely 1%, so there is clearly a great deal of scope to increase their support. The problem, as always, will be attracting private sector investment to new-build projects, which is always much trickier than persuading them to consider existing assets.
OUT OF THE RED.
2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
TRUST IN BANKS COULD TAKE YEARS TO REPAIR INTO THE BLACK.
2011 needs to be the year that the UK economy delivers the foundations for sustainable economic growth, and in order for this to be achieved issues surrounding access to finance need to be resolved.
n the immediate aftermath of Lehman Brothers’ collapse in the autumn of 2008, the environment in which companies accessed external sources of finance fundamentally changed. Small and medium-sized enterprises - the lifeblood of the real economy - and which are almost entirely reliant on debt finance from the banks, found credit lines that had previously been easily available to them being restricted or removed overnight. The tightening was most acute at the beginning of 2009, and credit conditions have gradually improved since then, but relationships built on trust between high street banks and SMEs - in every sector have been damaged, and it will take a long time for those relationships to be repaired.
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Larger firms were less affected by the situation, being able to obtain funds from a greater range of financing options, such as equity investment or bond issuance. Of course, running in tandem with this was huge anger directed at the institutions that had to be bailed out by the taxpayer. A popular view has emerged that the Government should pressurise major lenders, especially those which only survived through the support of public funds, into relaxing their risk criteria and lending SMEs more money. This is a simplistic argument to make, especially in the media, but we think the problems which many companies are facing arise because of more deep-seated economic influences. The British economy had structural
problems long before the credit crunch, but they were masked by the ready availability of debt finance. Now though, the major banks have become extremely risk-averse, have less money to lend, and also need to rebuild their own balance sheets. As a result, they operate much stricter lending strategies, and are unwilling to provide loans on business models they believe to be fragile. Our banks are equally determined to now share the risks of lending, either with other banks, or by asking owner-managers and management teams to provide significant guarantees. Naturally, those companies unable to gain the finance they require - to invest in capital equipment or personnel, to develop their training programmes, or even to
upgrade their web site and enhance their marketing offer - are disappointed, and even angry, when their loan applications are rejected. However, although Labour may have bailed out the banks, they are still not state-run, and there is really very little that this or any other Government can do, in practical terms, to increase lending levels. One significant move though was the creation of the Enterprise Finance Guarantee (EFG) scheme, through which SMEs without sufficient collateral to obtain bank loans, would have 75% of the amount guaranteed by the Government. Up to March 2011, £700 million had been made available through this initiative, and the scheme has now been extended until the 2014-2015 financial year, by which time the Department for Business, Innovation & Skills (BIS) calculates that at least £2 billion will have been lent. To counter criticism of long-delayed loan assessments by lenders, this initiative includes a processing target of 20 working days. Inevitably, companies have to pay a premium for accessing EFG loans, but we are very positive about this scheme, and the impact it is having on SMEs. Some observers do have concerns about the way the banks operate this initiative, notably concerning the level of personal guarantees required from some businesses, but that is not a black and white issue, and certainly not something which policy intervention can resolve. We also believe that the wider debate about bank lending is much more about perception than reality, although not everyone will share this view. The problem is that the Coalition came to power, trying to convince everyone that the mood music had changed, and that the major banks would now lend far more freely than they had during the previous two years. It was certainly the news everyone wished to hear, but it seemed to be forgotten by many that the business fundamentals behind each loan application still had to be sound, and that the banks would also need to take their own decisions on risk. If you are an owner-manager, or a director of an SME management team, and you have your loan application rejected by several banks, it is time to consider that
there is something inherently wrong with your proposal, or your business model. The rejection certainly does not mean that there is a conspiracy among the High Street lenders, to avoid providing finance to small companies. It is possible to obtain finance from other sources, of course, and if companies have been trading successfully for six or seven years, they may be able to attract equity finance.
Small and mediumsized enterprises the lifeblood of the real economy - and which are almost entirely reliant on debt finance from the banks, found credit lines that had previously been easily available to them being restricted or removed overnight. Unfortunately, many SMEs which have a funding gap are turning over between £2m and £10m, which isn’t usually appealing to potential equity investors, unless the business operates in a very attractive niche, or has an especially innovative product or service. The issue was identified more than 20 years ago, and successive Governments have tried to resolve the problem, usually by offering to part-match a loan from private sector sources with public sector funds. In the past, such initiatives have not proved very successful, but the latest
generation of products is still very much in its infancy, and it is too early to assess its impact. Most issues affecting equity finance involve mid-sized companies, rather than the large high-growth brands who will usually have their own in-house Treasury function. It is difficult to see what this administration - or previous ones - could do to address the problem though, and we believe that Governments should only intervene where a market gap is identified. If there really was a way of solving all the public policy issues in the area of finance, it would have been thought of by now. However, one area where we agree with the Government’s critics is about how information on its various schemes and initiatives, involving finance and business support, is made available. There is no doubt that the process is not as clear or transparent as it could be, and for a long time, the Business Link web site was confusing and difficult to penetrate, although we are promised that it is being revamped. There is of course a great deal of cynicism about Business Link, and the way it operates, but it is the Coalition’s preferred route to market, so companies ignore it at their peril. It’s also evident that Government departments could do more to improve their communication channels with the business community. Knowledge about the raft of finance initiatives, subsidies and support services on offer, especially for SMEs, would be greatly increased if they made more use of Britain’s trade associations, and business organisations. The issue is especially relevant at the moment, when companies are being urged to look outside their domestic markets, and to increase - or even simply to start - export sales. It’s clear that many businesses are not yet taking full advantage of the chances they could have to operate in foreign markets. However, although the Chamber movement is doing much good work in this area, the agencies of Government could certainly do more to promote the various schemes and initiatives they have established and funded, to assist SMEs in finding new opportunities for their products and services overseas.
OUT OF THE RED.
2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
INTO THE BLACK.
Every business determined to deliver a growth agenda must invest in human capital, however tough the trading conditions.
INVESTMENT IN PEOPLE IS CRITICAL
he reasons may vary; perhaps a simple need to replace retired or departing employees, a desire to introduce new skills, or to create a different blend of skills, but the primary reason a business invests in its people is to increase output and productivity. Employers in all sectors require people with a core skill-set, but they also need people with the right attitude towards learning and acquiring new skills. It doesn’t matter how much training will be required, but it is vital that the individuals are willing to embrace new knowledge and new ways of doing things. Unfortunately, our members, and our Chambers, consistently report that too many young people leave full time education lacking
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in employability skills such as customer awareness, self-management and problemsolving. Recent school reform has failed to place sufficient emphasis on these skills. Employers have shown their willingness to work with schools and colleges to help young people develop these essential employability skills by supporting teaching and providing managed work experience placements. Perhaps now is the time to embed these skills in the curriculum. The Coalition has been fervent in its support for apprenticeships, and we share their belief that the time is right to stimulate a new generation of young people into realising that the be-all of education is not
always to go onto higher education, and gain a degree. However, a drive to increase apprenticeships needs to be consistent and geared to the needs of employers and the needs of the economy. Increasing the number of apprentices will only occur if smaller businesses are supported to become involved. Equally, businesses will only get involved with apprenticeships if they deliver the skills and employees companies need to succeed. Many employers report that whilst they support the principle of apprenticeships, the training on offer does not always meet the specific needs of their industry and programmes are slow to react to changing technology and new ways of doing business. For smaller employers the bureaucracy of complex paperwork and form filling is bewildering so a swift simplification and overall reduction in the administration involved in this area would be warmly welcomed. To encourage more young people to consider apprenticeships as a valuable and worthwhile career path, the quality and independence of careers advice in schools needs to be vastly improved. We consistently hear examples of prejudice - within individual schools and at the Local Education Authority level where a negative mindset about industry, apprenticeships and vocational training in general is revealed. Variations upon the theme of ‘If you don’t work hard, you’ll end up in a factory’ are reported from across the country, and such outdated attitudes really must change According to the UK Commission for Employment & Skills, the UK is within
touching distance of being world-class on both jobs and productivity, and a better skilled workforce is both more employable and productive. Yet whilst UK skill levels have been improving, so have the skill levels of other countries, and in many cases, faster than ours. We are currently ranked 18th against our key OECD competitors on intermediate skills and by 2020 over two-thirds of jobs will require skills at this level or above. In particular shortages of STEM (science, technology, engineering and maths) technician skills must be addressed if the UK is to build on existing areas of strength such as IT, high value-added manufacturing, green technologies, creative industries and pharmaceuticals. In addition, current employment and skills systems in the UK are neither fully integrated nor sufficiently aligned to labour market needs. They are also excessively complex because they do not empower customers (be they individuals or employers) to drive demand, performance or quality improvement. Equally, there are issues which the private sector has to address, especially as SMEs gear up for growth. Most small companies are run by entrepreneurs, but although they will have many positive attributes, they don’t necessarily know how to lead, or how to manage people and resources effectively. Creating the right kind of training for these individuals - perhaps through executive coaching or mentoring - is a major issue for our economy, as is making them realise they need outside help and support.
For smaller employers the bureaucracy is bewildering, so a swift simplification and overall reduction in the administration involved in this area would be warmly welcomed. To encourage more young people to consider apprenticeships as a valuable and worthwhile career path, the quality and independence of careers advice in schools needs to be vastly improved.
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Take the risk-free path in corporate litigation and arbitration By Justin Cohen, CEO - Litigata Management and risk are the biggest challenges for all corporates involved in litigation, whether they are a FTSE 100 corporation, or an SME - especially in the present economic climate. According to research by Ipsos MORI, the potential amount of a client’s legal costs, and their possible exposure to third-party costs and damages, are the greatest concerns in any commercial dispute. However, its benchmark report - Litigation Funding: understanding the strategies and attitudes of Corporate UK - also revealed that many management teams and legal departments, even at listed companies, had low awareness of how they could be protected against such costs and risks. The survey was published in 2008, but its conclusions are just as valid today, and perhaps more so, given our increasingly litigious business climate. Despite numerous attempts to reform the British legal system, it remains prohibitively expensive, and innovative solutions which increase access to justice, for corporates of all sizes, usually take a long time to become accepted. Very few of the listed companies quizzed by Ipsos MORI had used third-party funding, for example. Their reluctance appears surprising, as the concept was backed by the Court of Appeal in 2005, and described by the Office of Fair Trading as “an important potential source of funding… (which) should be encouraged” in 2007. However, the Ipsos MORI research made clear that even those people aware of potential third party litigation solutions were often not using them, because of their belief that they were too expensive. There are though competitive risk transfer products available, for cases which meet the necessary criteria. The time is right for such innovations to become much more widely used by the cost-conscious and risk-conscious members of Britain’s corporate community, which is why Litigata was founded (formerly MyAccess2Justice, having evolved from a partnership with a top City of London law practice). Put simply, we are specialists at identifying, and transferring, risk within corporate litigation and arbitration - ongoing or pending - and at creating innovative and tailored solutions for clients. Even FTSE 100 companies are concerned about the scale of fees they can be exposed to in working with the legal profession, but quality is at the heart of everything we do. Underlining our client-focused approach, we evaluate all potential cases which come to us, through our in-house legal team, and undertake a risk assessment, before proceeding. All solutions are bespoke, and we have the capability to assist a client, even if a solicitor has already been engaged, but we will never proceed with a case, until we have received and reviewed the evidence. In order to provide a quality service, it is impossible to offer our expertise unless the value of the case is at least £100,000 - although we are involved with cases running into the millions - and we deal solely with corporate litigation and arbitration.
Our business model will continue to be underpinned by a network of strategic partners, including high-quality nationwide law firms, reputable insurance firms - some of which are AAA-rated - and litigation funders. We operate in conjunction with an introducer-appointed representative of Jardine Lloyd Thompson plc, the reputed international insurance broker and risk specialist. Our main products and services are:
These are the combination of Contingency Fee Agreements (CFAs) with After The Event (ATE) insurance policies. CFAs work on the basis that the legal profession - whether solicitor or barrister – will provide a discount on their fees, to be determined by a consequent risk assessment. The innovative nature of this product is that if we require the client to make any investment in the litigation, it will be neutralised by an ATE product that will seek to cover: ‘own solicitor costs’, ‘adverse costs’ (includes opponents’ costs), and ‘disbursements’ (includes the barrister). This is our only product that requires the client not to have already engaged a solicitor, whereas our ‘ATE only’ solutions can be provided, even if a solicitor has been engaged.
Third-Party Litigation Funding:
A professional funding company, or a hedge fund, pays your fees on an interim basis, in exchange for a share of the damages. This is very suitable for major cases, especially those with seven-figure values. In exceptional cases, we can source funding for as little as 5-10% of the damages, although historically, many providers have charged between 25% and 40%.
Litigation Outcome Hedging:
These products are our most innovative. They are tailored to the exact requirements of the client, and can be either insurance or finance-based. In particular, the ability to raise finance for a business, based solely on the collateral within the litigation - without any other requirement of security - and on a non-recourse basis, is highly desirable. In principle, outcome hedging can be available to both claimants and defendants although the finance-based solutions we currently provide are only available to claimants Outcome hedging could be of significant benefit to a corporate client involved in a merger or acquisition,that does not want an uncertain liability outstanding. Identifying and removing risk from corporate litigation is inevitably a complex subject, but in its simplest sense, we regard ATE insurance that provides ‘own costs’ coverage, pursuant to a ‘deferred premium’ and ‘contingent upon success’ basis, as the Holy Grail of corporate litigation.
2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
PRESENCE AT HEART OF EU IS VITAL IF WE ARE TO PROSPER
INTO THE BLACK.
Our presence in Brussels - which was established in 2008 – is about maximising the opportunities that come as part of the largest trading bloc in the world, and minisming the risk of unnecessary cost or ‘unintended consequences’ that new regulation can sometimes bring.
here are particular opportunities for our SMEs, who are typically more fleet of foot than the major corporates, and have tremendous opportunities to not just win new business, but to become more competitive through their exposure to new markets. The EU is the world’s largest trading bloc, with a combined GDP close to that of the United States, and it should be a target for any innovative and dynamic company. Before trade links can be established though, businesses need to increase their knowledge about the way the system functions. Essentially, the European Commission is the EU’s engine room, which prepares and
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proposes new legislation. The Council, made up of member states, and the Parliament, made up of MEPs, then debate and amend as necessary. While all the institutions make available a plethora of information online, it doesn’t make them particularly transparent to the uninitiated. The institutions are large and complex bodies, and you need a good information network of contacts, to either provide the information you need, or offer access to those who can. Personal relationships are essential, and it’s difficult to operate effectively from a distance. The Commission’s web site is a useful starting
point, but so much goes on behind the scenes that is not evident from the internet, even for the most experienced observer. Although the EU has a deserved reputation for glacial progress, things can sometimes move very quickly, and if you try to understand what is happening without an established network and presence on the ground then you will miss crucial information. Keeping on top of developments is key. That’s why Brussels has a large and established public affairs industry with thousands of trade associations, consultancies and NGOs here to influence and advise decision makers on a range of issues.
The Parliament’s proposals to increase maternity leave to 20 weeks on full pay could hit the UK exchequer with an annual burden of £3 billion at a time when public finances can least afford it. To have an impact, your voice should be heard long before legislation is published, and if a compelling case is to be made, you need to intervene - ideally with a dossier of data and analysis - whilst it is still just a twinkle in a Commissioner’s eye. It is also important to understand that the EU operates through a complex web of political alliances and coalitions. In Britain, we are used to a fairly predictable Parliamentary regime, but in Europe, it is always about compromise. Nothing is ever black and white, as would be expected given the significant cultural and political differences between the 27 member states. To lobby effectively, you need to understand what holds the alliances together, but also to be able to frame and craft arguments to win support from those who are not naturally your political friends. It can take more than two years for legislation to be drafted, debated and agreed, and the same period for the resultant directive to be implemented in each member state. During those years, you and your stakeholders are competing with hundreds, and sometimes thousands, of competing voices, so it is vital that you establish your strategic priorities, and set up clear channels of communication in advance.
Even within a single piece of legislation, you must always be aware of precisely what you might be able to achieve, and of all the factors which might impact your efforts. However, the single most important piece of advice is to always remain positive, however challenging that might sometimes be, as the rewards for success in fighting the case for British business are huge. If you were campaigning for changes to the Working Time Directive, for example, you could save billions for the UK through a successful intervention. To read about EU affairs in Britain, you could easily be misled into thinking that activity here - by lobbyists, trade organisations, and special interest groups - is always defensive, and often simply fire-fighting, but that isn’t the case. There are massive opportunities for companies to trade throughout Europe and as often as we are defending business from over-burdensome regulation we are pushing European institutions to tear down barriers to trade in an effort to drive economic growth. Viewed through an often-distorted media lens, business could be forgiven for assuming that the EU is intent on creating problems not opportunities. However, we shouldn’t lose sight of the fact that the rest of the EU is still our largest trading partner and it is becoming easier and easier to do business in other member states. For any business trading - or wishing to trade - across borders, ensuring that you have a good grasp of the legal requirements of the market you are in is essential. For example, businesses wishing to sell to consumers in other member states have to absorb the cost of setting contract terms for 27 different legal regimes at considerable cost. As a result, the biggest and most successful online companies, who offer most choice to consumers across the EU, tend to be big US corporations, such as Amazon, Given that the UK has a well developed online retail market we believe that tearing down these barriers will help to generate new opportunities for businesses and greater consumer choice. The facts speak for themselves: only 7 per cent of EU consumers shop across borders and 60 per cent of businesses say
that the additional legal cost associated with offering their goods or services in another member state is prohibitive. The EU is trying to tackle this problem with its proposal for a new Consumer Rights Directive, but it’s important that this new legislation achieves full harmonisation otherwise businesses will be faced with new rules that will not provide the incentive to get out into Europe and start trading. Europe is rhetorically committed to the Single Market to reducing bureaucracy and driving economic growth. Yet business needs that to become reality if Europe stands any chance of competing globally. A wider concern, and one which features consistently in feedback from Chamber members, is about minimising risk from EU regulations and specifically those related to health and safety legislation. Proposals for a review of the Working Time Directive should be ready at the end of 2011. It’s vital that the revamped legislation remains flexible by retaining the UK’s ‘opt-out’ clause, as it ensures employers and employees have the freedom to define the working hours that suit their needs. In a modern economy, such flexibility is indispensable. Framing legislation at the EU level is a difficult process, but it is made even more so if it does not respect the complexity of national social security systems. Take for example, the Pregnant Workers Directive which is under discussion in the Council. The Parliament’s proposal to include proposals to increase maternity leave to 20 weeks on full pay could hit the UK exchequer with an annual burden of £3 billion at a time when public finances can least afford it. Poland assumes the presidency of the EU in the second half of 2011, and we are eager to see how this directive is addressed. Until then, we will continue to advance our argument that there must be a balance between the health and safety of employees, and the rights of employers. Looking further ahead, the Commission is due to consider an updated health and safety strategy in 2012, and although this remains a blank page for now, we are campaigning to ensure that the review leads to a simplification of legislation, rather than the opposite.
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THE STORY SO FAR… The Costco brand was created in the US in the early 1980s, came to the UK in 1993 and now operates 22 ‘cash and carry’ membership warehouses across England, Scotland and Wales. Worldwide, the Costco Wholesale Corporation trades from more than 580 locations. Its founders, Jeff Brotman and Jim Sinegal, wanted to help the owners of small companies save money on their business supplies, but soon expanded their strategy to offer products and services for personal use.
Now, the Seattle-based group has more than 62 million loyal cardholders across the globe; buying top-quality merchandise at warehouse prices; anything from cameras to croissants, diamonds to denim, and tyres to tomatoes. Value for money is at the core of the Costco culture, but so is corporate social responsibility. Costco contributes to the local community wherever it operates, and is one of the top corporate sponsors of the BBC’s Children in Need Charity, contributing more than £4.1m since 1998.
COSTCO’S BUSINESS MODEL DESIGNED FOR THESE TIMES by Steve Pappas Costco Wholesale UK’s Managing Director We are often asked what has enabled us to dominate the membership warehouse sector for so long, and so successfully, and I believe it is our relentless focus on both quality and price. We deliver value for our members by operating large no-frills facilities, and making maximum use of the latest technologies. By eliminating many operating costs inherent in traditional ‘cash and carry’ distribution, we can return these cost savings to members in the form of lower prices. Although we always offer a wide range of nationally-branded product categories, we then select only a carefully-considered number of the most popular items and styles within each category. A typical Costco warehouse carries only about 4,000 items, but a grocery store might carry 40,000, and a large discount store might offer 100,000. Our strategic focus on selection decisions allows our buyers to provide the ideal mix of quality, brand and features. Buying virtually everything directly from manufacturers also allows us to cut out the middlemen, and to remove expensive distribution channels from our supply chains. We focus equally intently on both ends of the value chain; working tirelessly to improve quality, whilst also driving
down our prices, and that business model is proving itself ideally suited to these challenging economic times. We understand just what it takes to achieve business success, and are determined to focus on helping small and medium-sized enterprises to make themselves successful. I am determined that throughout 2011, we will support our members even further by developing new product lines and categories, expanding our services, and by establishing strategic partnerships with our suppliers. At the same time, we are mindful of our wider responsibilities, so we will continue to drive out waste and increase efficiency throughout our operations. Sustainability has always been high on our agenda, so we ensure that our delivery vehicles do not travel unless fully loaded, we are constantly reducing our carbon footprint, and limit our packaging requirements merely to the needs of safety and effective supply. Our warehouses are installed with food waste recovery systems, we have ‘green travel plans’ for employees, have invested in sophisticated building management systems to control heating and lighting costs, and use night blinds for refrigeration. We were also very proud when one
of our most recent warehouses in the UK Croydon, which opened in 2008 - achieved the best environmental rating of any industrial building that year. However, despite our continued success, and the positive feedback from our members, we are certainly not complacent. We know that 2011 will bring challenges, and that we will have to work ever-harder to remain profitable, and to deliver the quality of service for which we are known. Cost containment, focusing our energy on driving sales, and paying very close attention to detail will be critical, in every aspect of our business. Equally, innovation - in products and services, procurement, delivery and storage - will be a key driver for our business. Already, Costco has achieved an impressive lists of ‘firsts’ for our industry. Our average sales per location are the sector’s highest, and we were the first warehouse club to offer fresh meat, fresh produce, a deli and bakery departments, along with 1-hour photos, tyre centres and optical departments. During this year, as always, we will also continue to work closely with our suppliers, to strip out costs and deliver value, to our members, for our employees, and on behalf of our shareholders.
2011: A YEAR FOR GROWTH ‘the driving-force for recovery’
ACME SHOWS JUST WHAT SMES CAN ACHIEVE
t’s not that our present performance isn’t impressive; we are the world’s ninth largest exporter, and the third largest among EU states. We are also one of the few countries to have increased our share of the global market for services over the last 30 years, thanks largely to the continued strength of our financial services sector. However, our top five export markets - for both goods and services - have been unchanged for decades: the US, Germany, the Netherlands, France and Ireland. The Coalition’s determination to reduce our massive deficit means exports have to rise significantly, to counterbalance weaker domestic demand, or the strength of our recovery will come under serious threat. In recent months though, despite rising output from British manufacturers, our trading deficit has not improved as expected when the year began. It has also been evident for some time that the Government needs to act decisively, to reduce the barriers to export growth which are handicapping exporters, and to support and advise companies which have yet to expand outside their home markets.
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The BCC has already made significant progress, by convincing the drafters of the Trade White Paper to address such critical issues as the need for new trade finance and insurance products, especially those tailored to meet the needs of our SMEs, from whom export growth must come. We don’t claim to have all the answers, but we do have ideas about the way in which existing competitive disadvantages can be reduced, and even removed. Again and again, Chamber members remind us that so many companies remain risk-averse to exports - and we in turn remind the Coalition’s MPs, its ministers and their advisers, of the fears and uncertainties which bedevil business. Even many of those companies who do export tell us they only first considered overseas markets because someone contacted them to ask if they sold their goods or services in a particular country or region. We have to identify the reasons why so many businesses do not export, and then empower them to look outside domestic markets. One way in which companies can be given the confidence they need to take their first steps, is to be mentored by more
experienced exporters, and we believe such a scheme would really make a difference. Some businesses believe what they produce will not be in demand outside their domestic market, but when we hear that, we think of someone we have met many times, Simon Topman, the managing director of Birmingham-based Acme Whistles. He was running a long established, but very small business, but hadn’t considered overseas markets before he joined Birmingham Chamber, because from the day Acme was founded in 1870, it had only sold its whistles in the UK. Now though, the company exports to well over 100 countries, and each year, between 80 and 90% of its turnover comes from those sales. Simon was so impressed by the expertise, the contacts, and the support of his Chamber that he later became its president, and was the BCC’s vice-president between 2006 and 2008. I’m not suggesting that every business can replicate Acme’s remarkable success, but it does underline what can happen, when an SME is given the right kind of guidance and encouragement. Another way in which we believe our export performance could be improved is by allowing graduates in specialist subjects relating to overseas markets - most obviously, languages - to join companies on secondment, for between six months and two years. The Government could subsidise their employment costs by paying their National Insurance contribution, and handling the payroll for each participating business. The graduates would then be sent to research new markets for their employer, gaining valuable career-related expertise in the process. We believe this would be a viable incentive-based initiative, especially when graduate unemployment is at an all-time high. In terms of job numbers, and cost, our proposal would be relatively small, but we think it could help change the mindset of the companies who take part, and act as a pathfinder for a larger initiative. For companies looking to export, the prime agency is UK Trade & Investment (UKTI), which has been operating for many years, but its role is especially relevant at the moment, with the ever-present focus on a growth agenda.
Unfortunately, it has had its budget reduced as part of the Coalition’s drive to reduce the deficit, and we think that is perverse, and will be counter-productive. Our SMEs need all the help they can get, to identify and develop export leads, and then to break into new markets, especially in such competitive and fast-moving economies as Brazil, Russia India, China and Mexico. We see our major trading rivals, including France and Germany, increasing the support they provide to companies going on these missions, and we believe it is vital that our investment is not only maintained, but increased. It is equally crucial that UKTI constantly monitors the quality of some of its services and products, and that it then maintains a consistently high standard. Its Passport to Export initiative is generally wellregarded, but members tell us that its OMIS (Overseas Markets Introduction Service) reports whilst extremely valuable, vary in quality, in different regions and on different sectors. Equally, we as a movement need to ensure that the quality of our own services to members is consistently high. Many Chambers have international trade divisions, some host UKTI services, and all deliver certification and documentation services that are critical to exporters. As the public sector pulls back, Chambers are set to play an even larger role in helping UK small and medium-sized businesses to get ready to export, and get their goods and services into new markets. Another area where businesses need more support is in access to the European Single Market. Not only could we export more to other European countries but businesses can also use the European market as a springboard for trickier but higher growth markets such as China and India. A big problem is ignorance. That is not to say that the Single Market is perfect. We know that in some areas there are no rules governing how the market should operate, and in others, the rules have not been properly implemented. But that is the subject of a different article. Many first-time exporters are simply unaware of how other European markets can be easily and efficiently accessed. Take the ‘Points of Single Contact’, many of which have
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Britain has been one of the world’s great trading nations for centuries, but if our economic recovery is to be sustainable, there is no doubt that we have to do even better in export markets.
been up and running since early 2010. They are electronic one-stop shops for services providers wanting to trade across borders. The UK operation, known as ‘The UK welcomes business’ and run off the Business Link website, is as good as it gets but not enough businesses use it, or indeed the other PSCs across the EU. The same goes for the Enterprise Europe Network (EEN), which has a low profile in this country. The idea - that SMEs in one member state will use the network to find out what markets are best for their business, or pitch for work, or identify grant opportunities, in any of the other 26 states - certainly has much merit, but it needs to be promoted much more extensively in this country, if our businesses are to benefit. The BCC and local Chambers have been running a series of seminars on EU funding across the UK. It is clear that very
few businesses have even heard of the EEN, let alone made use of its services, although they are largely free. It makes sound practical and strategic sense, for example, for the local offices of UKTI, and EEN and other trade support programmes, to be based in the same building. It’s easier for companies to find them, and access their services, and much easier for the organisations to fine-tune their services to meet local needs. If we are to succeed in driving export growth, it’s also important that we mirror what our trading rivals do - such as France and Germany - in taking a coherent approach to working with business. Our trade advisors are frustrated by Britain’s inability to deliver support services which are genuinely ‘joined-up, and we know it is even more frustrating for member companies. We all have to do better, if the export boom we all hope for is to be delivered.
CELEBRATING A YEAR FOR GROWTH We want businesses across the country to step into the spotlight and enter the 2011 Chamber awards! During our long history we have helped businesses to grow, across all sizes and sectors and in every part of the UK and our annual awards are just one way that we recognise and reward your success, innovation and hard work. This year, the ceremony will be held at the newly refurbished Connaught rooms, one of London’s most prestigious venues. On November 24th, you can join the growing list of world statesmen, royalty and celebrities who have visited the palatial surroundings of the Connaught rooms and write a new chapter in its history. It’s bound to be a night to remember. Make sure you’re part of it by entering the awards today – members of accredited Chambers of Commerce can enter for free and all you need to do is complete and submit an entry form.
GIVE YOUR BUSINESS A REAL BOOST • • • • •
£50,000 worth of cash prizes to be won courtesy of RBS/NatWest Increase awareness of your company and your brand Gain a competitive edge Give staff the recognition they deserve Raise your business profile with free publicity
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2011 AWARD CATEGORIES MOST PROMISING NEW BUSINESS Recognising the start-ups and newcomers
ENTREPRENEUR OF THE YEAR Recognising the talent that shapes British business
BUSINESS OF THE YEAR Celebrating the best of British business
INNOVATION THROUGH TECHNOLOGY Recognising the most effective way of harnessing new technology
ACHIEVEMENT IN INTERNATIONAL TRADE Flying the flag for British business overseas
EXCELLENCE IN PEOPLE DEVELOPMENT Celebrating the best ways to help employees grow
THE SUSTAINABILITY AWARD Raising the profile of those who reduce our impact on the environment
EXCELLENCE IN CUSTOMER CARE Celebrating the best in customer service and care
FINDING NEW INTERNATIONAL MARKETS A new award to recognise commitment to international expansion into new markets
AWARD FOR OUTSTANDING BUSINESS ACHIEVEMENT Winner of winnerâ€™s award for outstanding achievement in business
HOW TO ENTER Simply download your entry form at www.chamberawards.co.uk Closing date 24th June 2011 For more information go online or call 024 7647 2593 or email the Chamber awards team at firstname.lastname@example.org
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The British Chambers of Commerce is the ultimate business network. No other organisation has as much influence or can boast such the variety...