Written Submission from Actuate UK (SBS0111)

Actuate UK Written Evidence to the Small Business Strategy inquiry

by the Business and Trade Select Committee

16 July 2025

Regarding this response, please contact: Maria Balarama. Our response is not confidential.

Introduction

Actuate UK, the alliance of the engineering services sector, welcomes the opportunity to respond to this consultation. Actuate UK represents the interests of over 60,000 businesses and 400,000 individuals (with a combined annual turnover of almost £10bn) covering a broad range of engineering, design, installation, facilities management and data driven activity, including, but not limited to: steel, lifts and escalators, electrical, heating, plumbing, energy management, micro-generation, ductwork, ventilation, fire and security, and wireless systems (engineering).

Our members, which we consult on this evidence submission are:

• BESA: Building Engineering Services Association
• BSRIA: Building Services Research and Intelligence Association
• CIBSE: Chartered Institution of Building Services Engineers
• ECA, Excellence in Electrotechnical and Engineering Services
• FETA: Federation of Environmental Trade Associations
• LEIA: Lift and Escalator Industry Association

Some of our members (eg. ECA) are also submitting their own responses. We support their views. Our response represents our common points and thoughts for this inquiry.

According to the Construction Leadership Council, the construction industry comprises 405,000 businesses of which 99% are SMEs (the bulk of which are involved in Business to Business transactions).

The engineering services sector not only forms a key part of the UK construction supply chain - forming between 40-60% of construction project value and sector turnover (capex/construction equates to 10% of asset whole-life cost) – but they also form an integral part of the facilities management service and maintenance sector (opex/operational cost equates to 80% of whole-life cost).[1]

Summary of our key points for the Small Business Strategy

• Companies in the construction sector are predominantly SMEs and operating in a very fragile economic environment – the construction sector has the highest insolvency rate in UK and it is getting higher.
• Delayed payment is unfortunately grounded into the economic structure of the construction industry and SMEs are disproportionately impacted. It should be addressed as a priority.
• Cashflow issues hinder the SMEs ability to train and invest in R&D; moreover, SMEs find it hard to take on apprentices and pay for training – this could be addressed with targeted support packages and the Growth & Skills Levy.
• We need to see implementation of the Procurement Act 2023 and better engagement with SMEs from public sector procurement projects.
• Trade associations and trade bodies should be consulted in developing and delivering the Small Business Strategy. Their advice and feedback could also inform any changes to the regulatory regime.

Answers to the Inquiry Questions:

1. What key issues should be addressed through the small business strategy?

Although our perspective is from the engineering services sector, we think that the following key issues are faced by SMEs across the economy and should be addressed in the forthcoming strategy:

• Cash-flow– prompt payment & fair payment contract clauses should be a key component to that.
• Skills shortages and training costs: SMEs should be supported to take on apprentices and participate in training and re-skilling for their people.
• Lowering energy costs, with sustainable energy supply: the recent announcements of energy infrastructure investment and reform of electricity market pricing are very welcome; we are waiting to see the detail of these reforms.
• A coherent regulatory environment – with cross-Government collaboration: from Health & Safety, Employment Law, fiscal and other regulation, there should be an impact assessment on the SMEs sector’s ability to implement new regulation & assess the success of existing ones.

Actuate UK has been campaigning particularly on the two first issues:

Delayed payment and unfair payment practices: Data underpinning multiple previous consultations from Government have all evidenced that small businesses suffer the most, and most disproportionately, from delayed and late payment due to the lack of bargaining strength and resources enabling credit control. Unlike bigger businesses with greater capabilities, cash-flow problems are more likely to result in insolvencies for smaller businesses and subsequent loss of jobs.

The issue of delayed/late payment to small firms also inhibits them from re-investment in technology, training and innovation. This connects with the second issue of skills shortages and gaps.

SMEs will have more challenges in attracting and retaining skilled workers without investment in training. For our sectors, the demand for skilled people outstrips the supply – therefore there is an urgent need to train more apprentices and skill-up current workforce. For SMEs to play their part in this, they will need to address cost and time issues, as well as access to public funding (including the new Growth & Skills Levy).

2. How can policymakers ensure that the voice of small businesses’ is heard in government?

There are many positive things to learn from initiatives like the Small Business Council and Cabinet Office Small Business Advisory Panel . Representation on such bodies should attract expertise across different sectors including the SMEs business community and trade bodies.

3. How straightforward is it to start a business, and what difficulties do entrepreneurs face when starting up? N/A

4. Do small businesses currently face any challenges in competing with larger firms? What can be done to “level the playing field”?

UK construction and facilities management averages four to five levels within its supply chain and 70 sub-contract packages across any one project[2]. It suffers from high fragmentation and disaggregation meaning that often the delivery level of the supply chain is highly divorced from the procurement level[3].

Larger firms command better purchasing power (secure materials at lower costs), and their administrative teams can handle complex tendering, contractual and credit. To level the playing field, we need to see more public sector projects broken down into smaller, more manageable lots that are accessible to SMEs.

Moreover “level the playing field”, intervention is needed to:

• Ensure protracted payment periods cannot be imposed on small businesses by guaranteeing a legal maximum payment period.  Crucially, parties must not be able to contract out of this guarantee.
• Ensure parties are not able to contract out of other statutory protection for payment – such as interest on late payment.
• Ensure whistleblowing systems such as the Office of the Small Business Commissioner include within their jurisdiction ALL significant sectors dominated by small businesses. At the moment construction - 99% SMEs - is excluded.
• Ensure there is a clear route to whistleblowing and no confusion between the Small Business Commissioner and the Procurement Review Unit.
• Build on the updated Payment Reporting Regulations with integrating the standalone payment reporting and the Fair Payment Code webpages with Companies House, to optimise the use by small business of payment performance intel.
• Ensure those who implement a system of cash retentions in construction are forced to ensure the funds are protected from both up an downstream insolvency and the amounts are automatically released to the party owed, unless counterclaims are proven (following the New Zealand model).

5. How accessible are public procurement processes for SMEs, and what are the consequences of the Procurement Act 2023 for small businesses?

The public sector accounts for 30-40% of demand within the construction industry[4] and is a key client and driver of change/evolution – subject to its ability to leverage its demand across its 10,000+ procurement authorities.[5]

The Procurement Act 2023, with its promise of a more streamlined and transparent system, is a welcome development. The introduction of the central digital platform, "Find a Tender," and the commitment to providing feedback on bids could make a real difference. We are cautiously optimistic and hope that Act will be used to award quality and responsible suppliers over the lowest bidder.

6. What is your assessment of the export support available to small businesses? N/A

7. What are the current challenges to the long-term sustainability of the high street, including ownership of the high street, and what are the consequences of these trends for SMEs? N/A

8. What are the key cost pressures, such as energy prices, facing SMEs, and how should these be addressed?

The energy and material prices have serious impacted SMEs. The recent increase in National Minimum Wage and the changes proposed via the new Employment Rights Bill will also increase the cost of skilled labour – including the ability to train and take on apprentices.

To address this, there is a need for a concentrated and multi-departmental effort to have a more resilient and cheaper energy supply. The recent reform announced on electricity market pricing are welcome news; we are waiting to see the detail of the reforms.

Skills England and the new Growth & Skills Levy should take into consideration the pressure on SMEs and find ways to support them, especially in taking on apprentices.

9. What is your assessment of the current overall tax regime, including reporting requirements, for SMEs, and how could it be improved?

We believe the Making Tax Digital is having a positive effect.

10. Does the Government’s current business support offer meet the needs of SMEs, and how could the offer be improved?

Trade associations and relevant trade bodies should be consulted in the design and implementation – some of them provide such support to their members too. The wide range of support available and institutional changes - as to who provides the support – sometimes make it difficult for SMEs to navigate through the system to find the support they need.

General business support should be differentiated from more sector-bespoke support.

11. Do family-run businesses face any specific challenges, including ‘red tape’, and what support do they require to meet these challenges? N/A

12. What has been the experience of small businesses in accessing banking services, and how does the Post Office Banking Framework support their needs? To what extent does this framework also provide adequate access to financial guidance and advice? N/A

13. How effectively are productivity-enhancing practices, such as new technologies, being shared and adopted among SMEs? Is the Innovate UK Catapult Network meeting the needs of small businesses? N/A

14. How should work across multiple government departments, mayoral strategic authorities, and local authorities be coordinated to support the growth of SMEs?

There should be a mechanism of coordination amongst the Government at least. It should also include consultation with trade bodies; they can provide advice and feedback on what is needed at different levels (Government departments, mayoral authorities, local authorities and local business partnerships), as well as increase engagement with the SMEs.

15. What metrics should the small business strategy use to measure its success, and how should delivery against these objectives be monitored?

We believe that a key metric should be how sustainable are the existing SMEs, which could be measured by (e.g.) growth of turnover, ability to grow workforce/take apprentices, level of R&D investment. In addition, measuring the impact of insolvencies (immediate and medium-term). The rate of insolvencies of SMEs in specific sectors should also be a key indicator for business ‘health’, when examined across the other metrics.

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