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Comments from ACCA
October 2003

The Association of Chartered Certified Accountants (ACCA) is pleased to comment on the above consultation paper. In the following paragraphs we consider the rationale proposed within Local Authority Business Growth Incentives.

ACCA agrees with the broad rationale on which the proposal is based. Local authorities often bear the costs of economic development but do not necessarily reap the benefits of the increased revenue it generates. Economic development imposes direct costs on local communities in terms of providing services such as housing and education, while the revenues that are associated with an increase in business activity are usually passed to central government. A scheme which allows local authorities to retain some of the business rate revenues will help address this mismatch.

ACCA believes that the proposed scheme to encourage local authorities to promote business start-ups by giving them a share of the extra rates generated may not be sustainable as, in our experience, the natural business cycle dictates that there can only be a limited number of start-up businesses within any given period. The business community has long argued that the UK Government focuses too much of its efforts on supporting business start-ups, at the expense of existing businesses. This is despite EC figures which indicate that the successful transfer of businesses is more important in terms of employment and other economic measures than start-ups.

We believe that the introduction of the proposed "local authority business growth incentives scheme" should be part of a broader programme which also provides incentives to prevent the unwarranted closure of existing enterprises. The Government should therefore be considering the introduction of incentives which not only encourage a greater number of business transfers but, at the same time, raise awareness of the importance of successful business transfers amongst the business community.

Point 2.19 in the consultation document states that the Government does not want any decisions taken at local level to be �distorted� as a result of the introduction of the new initiative. This implies that local authorities must not pursue a policy to increase revenue to the detriment of other areas. However, those authorities which encourage more start-ups obviously stand to benefit from increased revenue.

The consultation also appears to ignore the possibility that, with the incentive to create new businesses, some start-ups with little realistic chance of success may receive support and public money. If these marginal start-ups subsequently fail, it could leave more small businesses facing problems because of unpaid bills or unfulfilled orders. This could have a detrimental effect on the existing small business community.

The scheme could thus backfire on the promoter and result in more enterprises failing unless appropriate safeguards are put in place. ACCA calls for a strict set of criteria which potential entrepreneurs should meet before they are able to qualify for local authority support. In addition, there should be careful monitoring of local authority initiatives by central government, to establish that those authorities clearly understand the issues surrounding start-ups.

The consultation paper, under Point 1.3, states that "The Government has decided to increase the incentives for local authorities to work in partnership with businesses and other stakeholders, such as the Regional Development Agencies (RDAs), Small Business Service (SBS), and local Learning and Skills Councils (LSCs), to maximise local economic growth".

Other than the obvious incentive of increased revenues for local authorities, however, the paper provides no further suggestions as to what form these incentives might take. We believe that there should be a clearly defined strategy, developed in consultation with businesses and other stakeholders such as RDAs, which local authorities could follow to achieve the papers� partnership objectives.

The consultation also fails to take account of those intermediaries, such as accountants and banks, who provide crucial sources of advice and support to entrepreneurs starting up in business. Local authorities must work with the wider local business support community and not just RDAs and LSCs. Research consistently demonstrates that accountants are the first choice adviser to many small businesses and are of critical importance in the process of setting up and successfully running a business. ACCA believes that stronger links with accountants and banks should be established, in addition to government business support, if the initiative in question is to be successful.

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