Executive Director’s Report

                                    November/December 2010 and January 2011

The Government was challenged to tackle the power cuts plaguing parts of the Midlands. Ministers were urged to ensure that the rail network is fit for purpose. Tax pressures on businesses were raised with the Government. EU red tape was condemned by the business community. Fears were expressed at the implications of potential cuts in the number of police officers in the fight against business crime.

Power Cuts

Business Voice WM has called on energy regulator Ofgem not to sit on an investigation about power cuts.

The inquiry may not happen until 2015. It is urging the Government to, instead, order an immediate investigation.

The move follows a lengthy campaign in which BVWM has maintained that the frequency and duration of power cuts across the region is hampering industry.

Ofgem insists the problem is in fact getting better where lapses of three minutes or more are involved.

It does not monitor those of less than three minutes but recently promised it would make a start in the current five-year period. “We will be launching a programme of work related to short interruptions to seek better recording and reporting and also to understand customers' experiences and attitudes to short versus long interruptions.”

But BVWM wants action now.

Federation of Small Businesses regional policy unit chairman and BVWM board member, David Caro, cautioned: “They have said they will look at this – but it could happen at any time up to 2015.

“As a consequence, BVWM has written to Energy Minister Charles Hendry asking for this investigation to take place as soon as possible.”

“The problems short interruptions are causing are an added cost burden on manufacturers, particularly those involved in the high tech engineering sector where any supply disruption can cause major IT issues.

“It is a very difficult time for businesses in the current economic cycle when all are trying to work as efficiently as possible.”

Ofgem maintains that since introducing a system of targets, fines and rewards in 2005 the overall performance of operators has “improved”.

In 2009/10 Ofgem fined Central Networks West (CNW) £2.384 million for failing to hit its targets.

CNW was involved in a total of 12,000 incidents. It could face fines of £7.4 million this time around.

Tax

The Government has been urged to boost the troubled construction sector by reducing VAT to five per cent on all maintenance and improvement work.

Business Voice WM wants the measure included in the March Budget and has written to Chancellor George Osborne arguing the case.

Even if the move was only temporary BVWM believes it would give the industry a lift.
Some estimates suggest it could create more than 30,000 jobs across the country.

James Watkins, executive director, said: “While businesses support the Government’s focus to reduce the fiscal deficit to ensure that the UK has a strong competitive edge in global markets, we are particularly concerned that construction, including in the West Midlands, is enduring difficult economic circumstances.

“While there are indications of a hoped for revival for other business sectors, the prospects for construction are not as positive. With the Government rightly committed to significant improvements in infrastructure and house building, the need for recovery as quickly as possible to meet this ambitious agenda is critical.”

BVWM noted that a recent Experian report into the effect of a VAT cut had predicted up to 32,500 jobs could be created by the end of 2019 across Britain. Similar initiatives had led to beneficial impacts for the French and Italian economies.

Mr Watkins went on: “Even if this VAT reduction was for a time limited period only, it would have a very significant impact to help kick start the construction sector at this delicate time for the UK economy.”

In addition, Business Voice WM has urged the Government to think again about its bomb shell commercial property tax.

Developers across the country are angry that the measure, introduced by the previous Labour administration, is being extended by the Coalition even though the Conservatives condemned it in opposition.

Some owners have reportedly resorted to knocking down their own properties to avoid the charge.

The Government has insisted that, given the parlous state of the public finances, it cannot afford to act.

And it is even going further.

It is scrapping rates relief for empty properties with a rateable value under £18,000. From April the threshold for exemption will drop to a rateable value of £2,600.

It is reckoned this will pull in an extra £400 million a year.

Now BVWM has written to Communities and Local Government Secretary Eric Pickles pleading with him to consider the long term damage being done to cities.

And, if he still refuses to act, then local councils should use loopholes in the legislation to ease the burden unilaterally.

It maintains ending or reducing void business rates should be a key plank of the Government’s bid to kick start local economies.

It has branded the tax “iniquitous”.

James Watkins, BVWM executive director, said: “Normally there is some speculative property development to set against the downturn in the economic cycle in the expectation of improved prospects in the future. Such activity has been critical in keeping in place significant local employment and also in helping the general local economy weather these downturns.

“Void business rates have reportedly led to a check on these developments which, in turn, has negatively impacted on growth prospects for a number of local areas. In addition, local businesses who are trying to make ends meet with reduced operations during this difficult economic period are being penalised when, as a result of their initiatives, they are faced with this imposition.”

The letter said the tax was unfair and should be removed, or, at the very least, reduced.
And it claims that under the Local Government Finance Act 1988 councils have the discretion to vary the threshold themselves. Similarly, they have leeway in terms of partly occupied properties.

Mr Watkins said: “This surely is the sort of initiative that goes to the heart of the Prime Minister’s ‘Big Society’ proposals.

“The planned introduction of Tax Increment Financing will be of significant benefit to local councils and the wider business community. If councils could act independently to limit the harm being done by void rates then this would free up resources that the construction sector can use to reinvest in local needs.

“However, we understand there is uncertainty in what circumstances these discretionary powers can be used.”

The Government, he charged, should clarify the issue and be sympathetic in doing so.

“We appreciate the commitment of the Government to empower local communities – action to address void business rates would be a significant contributory factor to advance the Government’s agenda in this area.”

Crime

Police cutbacks demanded by the Government risk an escalation in businesses crime, a lobby group has warned.

Ken Wigfield of the Federation of Small Businesses and chairman of Business Voice WM’s Business Crime Forum has written to Home Secretary Theresa May asking for a meeting to discuss ways of mitigating the blow.
The fear is that police resources will be diverted away from the sector as priorities are reviewed.

His concerns follow threats of reduced numbers across the Midlands with talk of more than 2,000 jobs being lost in West Midlands Police, up to 450 jobs at Warwickshire, maybe 300 for Staffordshire and 287 in the West Mercia force.

The BCF has been working closely with all four and estimates that business crime costs the Midlands economy over £26,000 per hour.

Mr Wigfield cautioned: “We have supported the Government’s approach to give the police far more flexibility in tackling crime by ending the targets culture.

“However, our concern is that these cuts could make the fight even more difficult. The danger is that it could divert the forces’ attention away from business crime due to the need for the police to prioritise resources.

“Representatives of the Midlands business community see much merit in the Government’s determination to drive down the deficit to ensure there is macro economic stability so that firms are free to contribute to the competitiveness of the UK economy. When, though, this good work is at the expense of police officers we are concerned that the very serious cost to the economy of crime could be accentuated.”

However, he suggests: “There may well be a partnership approach that business can adopt with the Home Office and the police to address these matters given the serious repercussions which otherwise seem inevitable.
“We would request an exploratory meeting to decide how we can mitigate the cuts and ensure the fight against business crime is not impaired.”

R&D

EU bureaucracy is frightening small firms off accessing research funding, Business Voice WM has warned.

And it has urged the Government to persuade the European Commission to streamline the system.

In a letter to the Department for Business, Innovation and Skills, responding to a consultation exercise, James Watkins, executive director, said: “We believe the procedures that are currently in place are far too onerous, especially for small and medium sized enterprises who have little time and resource to invest in these applications.
“For a small business to obtain research and development funding, it can not simply put in a request, with a clear business case supporting its application. Instead, the small business first needs to find a company or academic institution to team up with that would be able to undertake the research work.

“That is because projects are structured as a collaboration between a group of partners who share tasks and responsibilities.

“The drawbacks are twofold. It does not allow for investment in a company’s existing R&D capability and it is a time consuming process for a small business that cannot spare much time and may not wish to go down this path if, after much effort, there is a possibility its funding application could be refused.”

Mr Watkins said regional development agency Advantage West Midlands, now being wound up, had commissioned a private company, Beta Technology, to provide a match-making service between the potential applicant for funds and a research partner.

However, the service was little known and “did not address the unnecessary hurdles in place to try and access these funds”.

He went on: “The European Commission should reverse its procedures and allow a business to make an application for funding – in principle. If agreed then the applicant could seek a research partner before resources are released.”

Mr Watkins admits it would be impractical and unrealistic for the EC to process applications at such an early stage. Therefore a body based in each member state – possibly at a sub nationall level – could do so for it in the first instance.

He noted: “This is a far more efficient way to ensure that public money is spent wisely, while not wasting the valuable time and resources of an SME in what could be a fruitless application.
“If we are to ensure that there is a bigger take up of R&D grants then it is critical that the process to access these funds is improved.”

Transport

Longer franchise deals are one of the key changes needed if the West Midlands rail network is to be brought up to scratch, Business Voice WM has confirmed.

But the lobby group’s rail spokesman Martin Chambers, of the Chartered Institute of Building, urged the Government to retain a major role for Network Rail. The BVWM submission, in response to a nationwide consultation, insisted that franchise changes should not be at the expense of excessive cuts to Network Rail's budget.

Mr Chambers noted: “While the West Midlands business community was once very critical of the performance of Network Rail, it has substantially improved. Delays caused by signal failures, for instance, have substantially declined.

“We positively support the Government’s proposal for longer duration rail franchises. However there are major infrastructure arrangements that would remain uncompetitive for a rail operating company to undertake and where the use of public funds is inevitable alongside longer franchise arrangements to ensure the UK finally has a world class rail network suitable to meet the needs of a world class economy.

“Equally, Network Rail plays a pivotal role in the establishment of the timetables for the entire UK rail network. The importance of this role should not be underestimated and therefore should be protected.

“Business wants a reliable rail network to aid competitiveness.”

BVWM says whatever blueprint the Government comes out with should address stations like Birmingham International that perennially miss out on major investment, and all because the relationship between its franchise operator and Network Rail just don’t work.

The submission states: “Any proposal to extend the life of a franchise should be used as the catalyst for considering a change in the ownership model for stations.

“As a minimum the future model should be predicated on a basis that favours improvements and perhaps therefore changes Network Rail’s position to one of being required to assist and facilitate the development process.

“Birmingham International is an important gateway in to the UK for international passengers from the nearby airport and it is critical that the station is substantially improved so as to more properly reflect its strategic importance. Therefore, the terms and conditions of new franchise arrangements should both include a mechanism that encourages the upgrade of this station but at the same time protects the long term interests of the railway.”

The same principle, said Mr Chambers, could also be applied to commuter stations in the Black Country and across the Midlands so that the quality of service for the customer was improved.

In its submission BVWM also made clear the need for each new franchise to be contractually bound to deliver any improvements that were promised during the bidding process.

As Mr Chambers put it “what we need is a new breed of franchise where the public positively see the franchise holder delivering to at least their original promises” in return BVWM recognised that the franchise holder will of course need to be assured that it will be rewarded for enhancing the asset value of the railway.

Young Businesses

Business Voice WM celebrated the success of young people in business at a special awards ceremony.

The European Union Social Fund Stars for Skills Awards, sponsored by the Ministry of Justice, Skills Funding Agency and Advantage West Midlands, highlighted the successes that people had made in the Midlands to develop their skills and the business base at the heart of the country.

The ceremony, which took place at Birmingham’s Hippodrome Theatre, included the Best Overall Young Achiever (14 – 19) award sponsored by Business Voice WM.

Business Voice WM Chairman, Barrie Williams, who was one of the award judges, said:

“Young people are critical to developing the business base of the Midlands so that we can create the jobs that families need. Their drive, entrepreneurial spirit and commitment are exactly what the West Midlands require to help deliver a private sector driven recovery from this economic downturn”.

“Business Voice WM is already helping the campaign for more young people to think about setting up their own business via the website – thinkenterprise.org”

“This ceremony was another step forward in Business Voice WM’s work with partners to ensure young people get the chance to establish the businesses the Midlands needs to take our economy forward”.