Small comfort from EU business reforms | 28 July 08

PLANS by the EU to cut red tape for small businesses are unlikely to bring major benefits to most SMEs, an EU legal expert has warned.

The EU’s Small Business Act for Europe (SBA) sets out a range of guiding principles and measures designed to simplify life for small businesses.

These include streamlining state aid rules so SMEs can access funding easier and making it simpler to operate a business across different countries in the EU.

However, Angelo Basu, head of EU and Competition Law at leading North law firm Ward Hadaway, has warned that such changes are unlikely to radically improve the lot of the North’s small businesses.

Angelo Basu of Ward Hadaway

Mr Basu (pictured) said: “While the measures in the SBA all contain good things, they’re small things for small businesses.

“The Act simply isn’t bold enough and there are a lot more things that could be done for small businesses that would have made a larger impact.

“Small businesses will still have so much in the way of regulation that they face and things like this are tackling issues at the edges, rather than the things which affect smaller companies every day.”

Mr Basu explained that while the SBA may make it easier to access state aid, it will have no impact on the amount of such aid that is available, whether from the Government or from regional development agencies.

Measures to allow companies to set up a single European private company – or “Societe privee europeene” (SPE) – will make it easier to establish operations in a number of different territories, but Mr Basu said very few smaller businesses would be in a position to expand across the EU.

He added: “If you are a company set up and ready to do lots of cross-border work, it may save you a bit of effort, but the biggest costs associated with such activity are unlikely to be company formation costs.”

And while the SBA will offer EU countries to cut VAT rates for locally supplied services often provided by small businesses, the UK government has yet to decide whether to do so.

Mr Basu said the most useful part of the SBA was likely the crackdown on late payment of small businesses, ensuring that by 2009 SMEs are paid for goods and services within 30 days.

“Having something to improve the speed of payments is very valuable,” said Mr Basu.

“This will give small businesses a legal right to payments within 30 days, but in practical terms that right will still have to be enforced.”

Despite the SBA’s shortcomings, Mr Basu believes the Act does demonstrate progress in putting the needs of small businesses on the EU agenda.

He said: “It is good that the EU is making the right sort of noises on this front.

“It has taken a lot of negotiation to get these modest proposals agreed by the European Commission and they still need the European Parliament and the Council of Ministers to approve them before they become law.”