The Small Business Service is to be radically "streamlined," Alistair Darling, the trade and industry secretary, said today.
Much of its funding for businesses would be redistributed through regional development agencies and its focus would shrink, he said in media interviews.
The government agency, established to support small businesses, had come under fire from entrepreneurs and the government spending watchdog.
Two weeks ago the British Chambers of Commerce said that small business owners were fed up with the government's approach to supporting them and wanted the SBS radically reformed.
The BCC said that its own research painted a picture of failure at the SBS in six out of seven of its responsibilities. More than 80 per cent of small and medium-sized businesses felt there had been no improvement in their access to finance, almost a third believed it had become more difficult, it said. More than 90 per cent said there had been no improvement in regulation and policy and nearly nine in ten felt that a dynamic start-up market had not been encouraged.
In May a National Audit Office report said that the agency had no way to measure its effectiveness and was perceived as having insufficient influence in Whitehall.
The SBS would be restructured to make it smaller and more focused, Mr Darling said. "It will have a much smaller policy focus and a much closer tie-up with the Treasury, so the Treasury is more tied into business concerns," he told the Financial Times.
"I think we need less people, but concentrated on those things that make a difference to small business - the regulatory environment, tax and so on," Mr Darling told Radio 4's Today programme. "So we will have a smaller policy group focusing on that and working closely with the Treasury, which after all is responsible for tax.
Mr Darling said that the downsizing was part of a broader drive to make business support less complex.
A "lot of" of the £150m in business support administered by the SBS would be transferred to regional development agencies, he said.
"I think in terms of the general support we give for business, the financial support, that’s best done locally through the Regional Development Agencies, for example. I don’t think that Whitehall is best placed to do that."
Responding to Mr Darling's comments, the Association of Chartered Certified Accountants (ACCA) called for the integration of government bodies "that supposedly support the small business sector."
"In England there is a plethora of support agencies – including the SBS, Regional Development Agencies, Business Links and Learning Skills Councils. Their services overlap and their activities are poorly co-ordinated," the association said in a statement.
It added that it wanted Business Link targets to be redefined. "They claim to provide an extremely wide range of advice but are only really effective in a small number of areas such as training and grants."
