Small Businesses as Job Creators

In the economic crises that set the scene for the 1979 General Election, with the country facing increasing unemployment and ‘economic decay’ (Liberal Party, 1979), the link between SME growth and job creation became increasingly important. The incumbent Labour Government had promised the continuation of the small firms employment subsidy (paying small manufacturing firms for jobs created, see Chapter 7) and proposed returning jobs to the inner-cities by stimulating the development of SMEs. The soon-to-be-elected Conservatives asserted explicitly that ‘the creation of new jobs depends to a great extent on the success of smaller businesses’ (Conservative Party, 1979). For the Liberals, the link was more implicit, but SMEs, and positive discrimination in their favour, was still associated with job creation.

In a letter to Francis Maude setting out key lines of argument for the forthcoming election manifesto, Joseph (1978) set out the need for small businesses in job creation:

We can, perhaps, put even more emphasis on the discouraging implications of the Employment Protection Act and the extra employment potential of the 800,000 small firms if only the majority of them were given sufficient encouragement and confidence to take on one extra employee.

(p. 1)

The idea that SMEs were responsible for creating a disproportionately high number of jobs had gained increased attention with the 1979

Neoliberalism and Enterprise Culture 125 publication of Birch’s influential study. Birch (1981) reported that two-thirds of net new jobs created, in a sample of 5.6 million US businesses (1969-1976), were in firms employing 20 or fewer people. In 1984, Birch was invited to a job generation conference sponsored by the Department of Trade and Industry. The conference reflected the contrary evidence that had begun to emerge around the role of SMEs in creating new jobs and an increasing questioning of Birch’s findings (Ganguly, 1985; Hirschberg, 1999). Exploring the impact of SMEs as job creators in the UK, Storey and Johnson (1987: 41) conclude that ‘... over a decade half the jobs created in every 100 small firms occur in the four firms which grow fastest.’ Nonetheless, the idea of SMEs as job creators was a powerful one with a persistent hold over enterprise policymaking, with politicians increasingly looking to start-ups and small businesses as potential job creators (a powerful, if unrealistic, refrain being that, if every self-employed person and small business in the UK created a single job each, there would be x million new jobs created).

While a few policies targeted key sectors such as manufacturing, the focus on ‘More Small Firms’ (Conservative Party, 1983) or ‘Backing Small Business’ (Liberal Party, 1987) continued to propose measures relating to removing general obstacles affecting all SMEs rather than attempts to target the small proportion of firms responsible for a disproportionate amount of net job creation. For example, while Labour has generally had less to propose in this area, both Conservatives and Liberals have frequently suggested SME job creation could be supported through reductions in taxation, access to public procurement and the areas of access to finance and burdens of regulation (Wapshott and Mallett, 2018). These types of proposal tend not to discriminate amongst SMEs nor address how to support the limited number of potentially high growth firms, but we will see them influencing several of the policies developed over the coming chapters.

Finance for Small Firms in the Enterprise Culture

When the Conservatives came to power, new guidelines were introduced for the National Enterprise Board (NEB), for example introducing a greater emphasis on the need for potential future profitability and an expectation that it would sell off its portfolio as soon as possible. The general approach to the NEB is perhaps suggested by the title of a book written by Conservatives Grylls and Redwood (1980) and published by one of the new, influential think tanks: The National Enterprise Board: A Case for Euthanasia. However, the Conservatives did not radically change or limit the NEB in the short term and it is also worth noting that several regions began to set up their own local Enterprise Boards. The NEB was also the partial basis for the development of a range of new organisations and initiatives delivering enterprise policies focused onfinancial assistance for small businesses that included: the British Technology Group; Oakwood Loan Finance Ltd; Small Firms Loan Guarantee Scheme; and the Business Start-Up Scheme.

The NEB maintained an investment role, focused on high technology companies and investment, particularly in the North of England. This was developed through the formation of the British Technology Group (BTG) in 1981 by amalgamating the National Research Development Corporation and the National Enterprise Board to support the translation of research into commercial products, seeking to promote industrial competitiveness. It offered five-year, unsecured low-interest loans to small firms, predominantly in what were now termed the Assisted Areas in England. There were also calls to extend its engagement further, for example ‘to establish a patenting advisory and assistance service for small firms’ (Hansard, HC Deb. 16 December 1982 vol.34 col.214). Operating at a fairly large scale, by 1982 the BTG sought to invest £20m and was obliged to dispose of all holdings at the earliest opportunity. It came to focus on technology transfer and in 1992 was privatised (via the British Technology Group Bill) and subject to a management buyout to a consortium including BTG management, financial institutions and universities (it is today focused on the healthcare industry).

Oakwood Loan Finance Ltd was set up as a subsidiary of the NEB to offer loans to small companies, in its nine-year history making about 70 investments, for example ‘in 1982, 29 offers of finance were made involving £1.15 million’ (Lonsdale, 1997: 57). Other schemes focused on specific industries such as Small Engineering Firms Investment Scheme focused on engineering companies with fewer than 200 (later extended to 500) employees, seeking to support investment in advanced capital equipment to improve their manufacturing ability and productivity. The scheme received 1748 applications during its eight-and-a-half weeks of operation, 1355 applicants receiving offers of a grant from the £30m investment (the number of applications necessitating this as an increase from the originally planned £20m), the majority of firms in the South East of England and West Midlands (Hansard, HC Deb. 15 June 1982 vol.25 col.234).

Other schemes saw a shift in approach for the provision of finance to small businesses, focusing more on supporting the lenders than offering alternative sources of finance as enterprise policies had often tended to do since the identification of the Macmillan gap in 1931 (see Chapter 3).