Select Committee on European Scrutiny Twenty-Third Report


COM (02) 68

Commission Report on the European Charter for Small Enterprises.

Legal base:
Document originated:6 February 2002
Forwarded to the Council: 6 February 2002
Deposited in Parliament: 6 March 2002
Department:Trade and Industry
Basis of consideration: EM of 21 March 2002
Previous Committee Report: None
Discussed in Council: European Council 15/16 March 2002
Committee's assessment:Politically important
Committee's decision:Cleared

  19.1  Small businesses[42] account for 99% of all businesses in the EU and provide 53% of the jobs, according to the Commission. The proportion of jobs in small businesses is significantly lower in the United States and Japan. Recognising the crucial role that small and medium-sized enterprises (SMEs) play in the development of competitiveness, innovation and employment, the European Charter for Small Enterprises[43], endorsed at the Feira European Council in June 2000, calls on Member States and the Commission to create the best possible environment for small businesses and entrepreneurship. It sets out ten clear lines for action, in areas of central importance to SMEs.

  19.2  The Charter includes a commitment for the Commission to provide a progress report to the Spring European Councils. The first report briefly summarised the main areas of activity[44]. The main objective of this, the second report, is to identify general strengths and weaknesses and to maintain the momentum. It is based on submissions from Member States and the Commission. The strengths and weaknesses of the performances of the Member States are brought out, and the Commission takes the opportunity to set out, at considerable length, the work it has done. In presenting the report, the Commission says that if governments do not think small first, they may never think small at all. Think small first sums up the essence of the EU's enterprise policy.

  19.3  The Commission identifies broad trends which point to progress being made, for example, in the areas of education and the time and cost of setting up a business. However, it notes that, even in these areas, the story is not consistent across the Member States. In general terms, areas which require more immediate attention include access to finance and SME representation.

  19.4  The General Conclusions of the report are:

    "Progress has undoubtedly been made since the Feira European Council, although the perceived nature of the changes, and the fact that many of them are recent, makes it difficult to evaluate their overall impact. Nevertheless, the diversity of measures is itself a source of strength, showing how much scope there is for further, more systematic actions. Given the recent deterioration of the economic situation in Europe, it is more important than ever to restore small businesses' confidence and support their entrepreneurial dynamism.

    Achievements vary from one country to the next and there is clearly scope for further development. Performances also vary according to the area considered. Most Member States have turned their attention, for example to the need to facilitate business start-up and to improve small enterprises' access to e-commerce. This may, in part, be because it is a relatively visible issue that lends itself to short-term improvement. Promotion of entrepreneurial spirit, on the other hand, is a tougher assignment and is likely to take longer. Against that, progress will be correspondingly valuable. There also remains plenty of scope for more systematic representation of small business".

Education and training for entrepreneurship

  19.5  According to the Commission, the entrepreneurial spirit remains weak across the EU and needs to be fostered with a broad range of medium-term measures and a much wider commitment to support learning and entrepreneurship. There is significant potential for greater use of 'incubators'. Businesses that start in an incubator have a much higher success rate than others, with 90% active three years later. University chairs on start-ups and management of SMEs have been established in Germany, Spain and Austria and university courses are offered in Denmark, Ireland, Portugal, Finland and Sweden.

Cheaper and faster start-up

  19.6  In a number of countries, the combination of time, costs and capital requirements constitutes a significant obstacle to entrepreneurship, and further efforts are required to simplify existing requirements. There remains considerable scope for exploiting information technology, particularly in terms of online registration. This should be accompanied by reform of procedures.

  19.7  The minimum capital required for registration ranges from euro1 in Ireland and the UK to euro23,500 in another, unnamed, Member State. The cost of registration of a private limited company is relatively costly, although in Denmark it is zero.

Better legislation and regulation

  19.8  This is identified by businesses themselves as one of the areas where reform is most urgently needed. The report recommends that:

  • more attention should be given to repealing redundant regulations;

  • more use should be made of systematic impact assessments when legislation is drafted and greater use should be made of economic analysis when assessing costs and benefits to business; and

  • bankruptcy laws should be examined with a view to finding solutions for insolvent but viable business and to lessening the penalties and stigma attached to 'honest' failure.

Availability of skills

  19.9  The Commission says that, with some notable exceptions, the EU is failing to address its skills gap adequately. On average 10% of 25-64 year-olds participate in some type of training. Only in Denmark, the Netherlands, Finland, Sweden and the UK is the figure substantially higher. An increasing number of small and micro-enterprises[45] consider the lack of skilled labour as their most important problem, with figures of 30% and 20% respectively in 2001.

  19.10  The EU faces a deficit of skills in the "crucial" ICT[46] sector, as well as in other important sectors such as engineering. Although Germany, Spain, France, Ireland, Italy and the UK all perform well in terms of the numbers of graduates they produce in computer sciences and related subjects such as mathematics, most other Member States compare relatively poorly in this respect to competitors like the United States.

  19.11  The report says that:

    "there is a need to focus more on certain key skills in the education system, to develop stronger governmental support for the industry-science base and to encourage business investment in R&D. Beyond the education system, lifelong learning, particularly in ICT-related skills, needs to be encouraged in order to overcome the skills deficit; and greater mobility of labour within and between Member States should be encouraged to enable some of the skills bottlenecks to be surmounted and to improve access by SMEs to a wider pool of qualified labour. National administrations are increasingly committed to making all relevant documents and forms available online, as well as to providing guidance and information via the Internet."

Improving online access

  19.12  The proportion of small businesses using the Internet has increased steadily, with micro-enterprises doing so increasing from 40% in 1999 to 70% in 2001 and small enterprises from 67% to 81% over the same period.

  19.13  The report finds that all governments have demonstrated an awareness of the need to make their services as accessible as possible and many now have Internet sites that provide information and advice on administrative procedures, financing opportunities and other issues related to start-up and management. There has also been progress, notably in Greece, towards linking ministries with authorities in remote regions so that information can be shared more easily between them. Single access points that provide business with a direct link to all government information and services are becoming more widespread, and the Swedish Government has recently developed an interactive website aimed at providing information to businesses and increasing their dialogue with the administration. Electronic transactions can be carried out between businesses and tax and social security authorities in France, Ireland, Austria and Norway, while public procurement portals are either in place or under development in Denmark, Germany and Greece. E-Envoys have been introduced in the UK and Norway to lead the way in putting their country online.

More out of the Single Market

  19.14  According to the Commission, the Single Market has already been of immense benefit to businesses, but it is clear that these benefits will increase with its full completion. SMEs can particularly benefit from increased openness in public procurement.

  19.15  The Commission says that it will continue its efforts to improve the business environment, particularly for small businesses, through the target actions in the Internal Market Strategy.

  19.16  The report points to the emphasis given in the IDA (Interchange of Data between Administrations) work programmes for 2001 and 2002 on the direct benefits of pan-European services and says that the main initiative it foresees is to create a common portal for the EU administration.

Taxation and financial matters

  19.17  Despite important progress in this area, businesses still see lack of financial support as their greatest constraint. Early-stage financing (seed and start-up capital) still constitutes a very limited share of the venture capital available. The increasing use by the Member States of tax incentives and exemptions aimed at enabling small enterprises to reinvest is welcome. France has reduced the rate of corporation tax for businesses with a turnover lower than euro7.6 million.

Strengthen the technological capacity of small enterprises

  19.18  All governments are committed to promoting technology transfer to small enterprises, and increasing attention is being given to co-operation between enterprises and research institutes. However, less has been reported about inter-firm co-operation, clusters and networks, which raises the question of whether or not enough progress is being made in these areas.

Successful e-business models and top-class small business support

  19.19  The report says that the results are encouraging but performances differ greatly between one country and another. There is plenty of scope for raising the profile, and use, of e-commerce among small business. The Commission states that strengthening the legal framework for e-commerce and improving the infrastructure need to be combined with awareness-raising measures and training in ICT skills.

The Government's view

  19.20  The Minister for Small Business (Mr Nigel Griffiths) notes that the Commission urges the European Union to adopt the UK's Think Small First principle as the central approach to enterprise policy development. He goes on to select references to the UK in the report. Highlights he notes are that the UK:

  • is amongst those Member States with the lowest costs and shortest time required to start a business in the EU;

  • has established a Regulatory Impact Assessment system and analyses alternatives to regulation;

  • has set up the High Technology Fund which invests in early-stage high-technology focussed funds;

  • sets tough targets for businesses to trade online;

  • has opened a representative office in Brussels — smallbusiness europe, a voice by small business for small business — where the UK has been the only Member State to take direct action on this element of the Charter;

  • has introduced scholarships for potential entrepreneurs from deprived areas;

  • has introduced steps to modernise insolvency laws and allow 'honest failure';

  • has introduced an E-Envoy; and

  • has launched a programme to promote links between universities and business for the commercial exploitation of university research to make the most of the UK's innovative potential.

  19.21  The Minister comments on the policy implications of the report as follows:

    "The Government welcomes this valuable report by the Commission. The report is important both in terms of what it reveals on progress made against the Charter commitments and the fact that as a substantial, informative document it strengthens the validity of the Charter itself. The UK believes that the Charter must be recognised as a crucial instrument in the development of enterprise policy and it is reassuring to see that the Commission describe the Charter as being 'a pillar of the European Commission's enterprise policy and a cornerstone of the policy of the Member States'. ..

    "The report demonstrates that many good initiatives have been brought forward by the Member States and the Commission, but that, for the EU to increase significantly its competitiveness, much more needs to be done. The Charter must continue to be fundamental to the development of enterprise policy in the EU for the remainder of the decade to help us achieve the Lisbon goal to become the most competitive and dynamic knowledge-based economy in the world.

    "The Government agrees with the findings of the report regarding strengths and weaknesses. We will seek to learn from the good practice of other Member States that the wider report identifies and builds on those areas where we are perceived to be doing well. We agree with one of the principal findings of the report that better representation of small firms interests is an urgent necessity in all policy fields. The UK has already taken action in this area through the setting up a representative office in Brussels".

Barcelona European Council

  19.22  The report was presented to the Spring European Council in Barcelona which asked the Member States to speed up implementation of the Charter and learn from best practice. It took note of the Commission's intention to submit a Green Paper on entrepreneurship before the 2003 Spring European Council and agreed that it would meet before every Spring European Council to assess progress in this area.


  19.23  The report is a useful benchmarking tool. It constructively highlights good practice and successful initiatives, but occasionally names and shames, though this is as a result of comparing information provided by the Member States themselves, rather than of any independent judgment. The report credits the Member State governments with commitment, but certainly serves to draw attention to the gaps which need to be closed if the EU is to achieve the Lisbon objective of making Europe the world's most competitive and dynamic knowledge-based economy by 2010.

  19.24  It points to better legislation and regulation as one of the areas which businesses themselves regard as most urgent, selecting the repeal of redundant regulations as a priority. We shall be looking to see, in next year's report, what the governments of the Member States, including that of the UK, can show that they have done to remove unnecessary bureaucracy from small businesses.

  19.25  We now clear this document.

42  Businesses employing 50 people or fewer. Back

43  (21312); see HC 23-xxi (1999-2000), paragraph 15 (14 June 2000). Back

44  (22258) 7125/01; see HC 28-xii (2000-01), paragraph 11 (25 April 2001). Back

45  Not defined. Back

46  Information and Communication Technologies. Back

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