Memorandum submitted by The Federation of Small Businesses (FSB) (DIW 32)

The Federation of Small Businesses (FSB) is the UK's largest business organisation which represents the interests of over 215,000 members across the UK, more than 10,000 of which are located in Wales. The FSB's membership is diverse and is therefore a sound reflection of the majority of SMEs in Wales. We welcome the opportunity to submit evidence to the Welsh Affairs committee, as we feel that as the vast majority of businesses in Wales are SMEs, it is important for the views of this sector to be strongly represented.

It is also important to stress that amongst the membership of the FSB in Wales around 36% of members have their main business premises located in a small village, a farm or in a rural area so the adequacy of the infrastructure of the digital network in Wales is one of great importance to our SMEs.

Infrastructure

In our most recent comprehensive members survey[1] we point to the fact that as 68.8% of small businesses operate a website, there is a need to make sure that small businesses have access to effective broadband so that they have the ability to work flexibly and meet the demands of customers and clients. There is also a need to improve the use of existing broadband and bandwidth for firms in certain sectors.

It is also important to note that in Wales our SMEs estimate that around 13.4% of their trade is derived from e-commerce compared to just an 11.6% average figure for SMEs in the UK.

In terms of the use and take up of ICT amongst SMEs, the headline findings from that survey showed that:

· Almost 31% of companies in Wales did not have a website.

· A very small proportion of Welsh companies made full use of ICTs−only 0.8% linked their website to their suppliers and 1.9% linked to suppliers and sold online;

· One of the key reasons for the lack of take-up of more sophisticated Internet tools could be the lack of access to broadband generally with only 81.1% of SMEs stating that they had access to broadband at their company premises. Furthermore the lack of high-speed broadband access is also a factor. Only 32.3% of businesses indicated that they had access to broadband of more than 4Mbps;

· Home-based business and retail/shops were the least likely to have a website or use it to advertise. This was confirmed by the large proportion of owner-only firms that did not have a website;

· There were strong links between educational level and Internet adoption. Those with qualifications were much more likely to have adopted the Internet and to use it to advertise and sell their products or services;

In light of these findings, the FSB makes two key policy recommendations in regards to basic ICT services and infrastructure:

1. Given that 31% of small businesses in Wales do not have a website, the full benefits of maximising the use of websites should be clearly communicated to the business community, particularly with regard to the opportunities that buying and selling online present. The results show that 43% of those businesses which used their website to advertise had increased turnover by more than 20%.

2. The results show a clear difference in access to fast broadband in rural and urban areas, whilst usage is about the same. Broadband service providers should provide the most effective service to all small businesses across the country to ensure that the existence of digital exclusion is minimised for SMEs in Wales.

Fraud and Online Crime against SMEs

Fraud and online crime is on the rise and is a growing concern for small businesses particularly in the current economic climate. In volume terms, instances of low level crime against a business such as vandalism or criminal damage are more frequent, however, the issue with fraud and online crime is that one event can be highly disruptive and even force a business to close.

The FSB surveyed its members in 2008 about the issues of fraud and internet crime[2] and it is of huge concern that 54% of businesses have been a victim of fraud or online crime and a significant 26% of businesses are deterred from buying and selling online because of the fear and risk of online fraud. Small businesses make up over half of UK GDP, are the primary job creators and are more likely to be able to respond flexibly to the current downturn in the economy. Small businesses need to take steps to protect themselves but are also relying on an effective response to fraud and online crime from the police, banks and other relevant organisations.

The key findings from this survey were that 54% of businesses have been a victim of fraud or online crime over the last twelve months, whilst a significant 37% said that phishing emails had been a problem. 15% had been targeted by card-not-present fraud (where card details are fraudulently used for transactions over the phone or internet), and 15% said that IT systems issues (such as viruses, hacking, denial of service attacks) had been an issue.

Other key findings were that:

· One third of businesses currently do not report fraud or online crime to the police or banks, 23% believe that it would not achieve anything;

· Businesses are positive about the options for improving the response to fraud: 53% want clearer information about how and where to report these types of crime, and 44% want a specifically named contact in their local police force responsible for tackling fraud and online crime;

· Overwhelmingly, 85% of businesses in England and Scotland said that they would report fraud if a designated reporting centre was set up which would gather data and use it to fight fraud (Wales already has a reporting centre);

· Businesses understand that the best form of protection is prevention with 84% opting for a firewall between the computers/network but only 6% accessing guidance and training on prevention through regional fraud forums or websites such as www.getsafeonline.org;

· In over half of cases (54%), the cost of online crime and fraud was negligible to businesses. However, fraud also seems to hit businesses between the £500 - £4999 brackets (12%), which, over a twelve month period, are significant sums to small businesses;

· Only 6% of businesses have had their corporate identity stolen, however 60% believe that there should be more awareness raising and education on how they can protect their business;

· A significant 29% of businesses have been a victim of card not present fraud where 22% had received a chargeback (most frequently below £1000). 52% think that the bank/payment company should take greater responsibility for the chargeback fee, particularly where authorisation has already been given;

· Where it is relevant to their business, 13% are implementing the Payment Card Initiative Data Security Standard (PCI-DSS) (which ensures that businesses securely store information on their customers and clients) but the most common feedback was that the initiative was not well tailored to small businesses.

With these findings as the background, the FSB makes the following key recommendations in relation to online crime and fraud:

1. Businesses need a central, accessible and well-advertised reporting centre for both fraud and online crime to enable them to report these types of crimes in a straightforward way;

2. The National Fraud Reporting Centre and Police Central e-Crime Unit (PCeU) must work hand in hand in order to set up an effective system of gathering intelligence which feeds into investigation and prosecution;

3. Businesses that report fraud would appreciate feedback on how the information is being used to tackle fraud and online crime with information about successes;

4. Businesses are keen to have access to a local police contact on fraud and e-crime to answer queries. There is clearly a need for the National Fraud Strategic Authority and Police Central e-Crime Unit to work on rolling out effective training to all police forces;

5. All Regional Fraud Forums should devise effective strategies to engage and communicate with small businesses and offer advice on fraud prevention.

Training and Skills

Finally, of vital importance to ensure true digital inclusion in Wales, the issue of training and skills needs to be addressed.

The FSB has consistently said that, in order for the UK to meet the productivity challenge, it is crucial that the size of the workforce should increase and that the skills of the workforce should improve.

However, from our survey results[3], it is clear that the recurring basic skills problem continues to rear its ugly head. Many businesses continually struggle to recruit staff with adequate literacy, numeracy, communication and customer service skills. Schools, colleges and universities must ensure that all learners are equipped with these skills so that they can enter, and progress through the labour market.

Basic skills should not be the responsibility of the employer. Employers want to focus staff training on the skills relevant to the job in hand and not on the readdressing of a failure within the education system.

It is also critical for policymakers to realise that micro and small businesses are not condensed larger businesses - they have contrasting training needs. Small businesses require training that is more accessible through short, local, affordable courses. Informal learning is by far the most common approach to training for small businesses; however, this remains unaccredited and rarely appears in official statistics; the FSB believes that informal training must be recognised by Government.

In the current economic climate it is vital for government, employers and employees to invest in skills that are vitally important for both supporting small businesses and getting people back into work during these difficult times.

With particular reference to IT skills, basic skills deficiencies in numeracy and literacy appear to be a consistent theme and one of concern for policymakers, however, in addition, the importance of technical skills reinforces the findings in the FSB survey (2006) and the potential importance of training in overcoming these deficiencies. Overall, the 2008 survey has highlighted a continuing trend from previous surveys and that a higher percentage of small businesses find skills shortages in IT, management and sales and marketing in their existing employees than when trying to recruit new staff, in particular, respondents in Wales found a greater problem with the lack of basic IT and technical skills amongst the over 25s in their workforce.

The government must take steps to ensure that micro and small businesses are at the forefront of skills and training policy. Currently, failures within the education system and irrelevant qualification design are damaging the competitiveness of the small-business sector.

Based on our survey, the FSB recommends:

1. A policy focus on the needs of smaller businesses - realising that the majority of smaller employers use informal, unaccredited methods of training, which should be as valued as recognised paper qualifications.

2. Greater representation of micro and small businesses at board level across all SSCs. The Commission for Employment and Skills (CfES) is charged with relicensing SSCs and we encourage the CfES to be firm with any Sector Skills Council that ignores the training needs of micro and small businesses.

3. Greater joined-up working and sharing of information across awarding bodies to limit the overlap of courses.

4. Increased visibility of SSCs amongst existing business networks to help raise the awareness of the Councils in the small-business community.

Taken together, and with a specific focus on IT skills, these measures should further enhance full digital inclusion within Wales amongst the SME sector.

In conclusion, the FSB feels that these three issues, of infrastructure, online crime and fraud, and skills and training, are the three most important areas for SMEs when considering digital inclusion in Wales.

If the committee requires, we can provide full copies of all the reports cited in this evidence, and we would be pleased to expand on any points raised if required and we look forward to presenting oral evidence to the committee.

February 2009

[1] Putting the Economy Back on Track: Transport, Environment and ICT. FSB, November 2008.

[2] Inhibiting Enterprise. Fraud and Online Crime Against Small Businesses. FSB. February 2009.

[3] Putting the Economy Back on Track: Skills and Training. FSB. November 2008.