The government's budget for small business support has grown to an unwieldy £12bn, and there's no evidence to suggest the money is actually doing any good. That's the interim verdict of a Conservative-backed taskforce led by former BBC Dragons' Den entrepreneur Doug Richard, who appears to enjoy stirring the hornet's nest of bureaucracy. Among Richard's chief targets are the Regional Development Agencies (RDAs), which he says are stifled by excessive administration, and the UK's Business Links—in Richard's words, merely a "decoding system to the Byzantine system hidden behind".

We've been here before, of course. Last year, the Chancellor included in his budget a plan to reduce the complexity of the business support network, in response to a 2004 DTI report claiming the cost of providing such a service was £10bn. Richard's taskforce puts it at £12bn: "They didn't do too bad," he says. "They just missed by £2bn—what's a couple of billion between friends?"

The Chancellor's plan is to cull some 3,000 business support schemes until there are a more manageable 100 over the course of the next three years. A Business Support Simplification Programme (BSSP) team has been set up within the DTI, although Richard claims his taskforce is better placed to assess support effectiveness than the government itself, despite the DTI's own acknowledgment that the current system isn't working. "Because its approach was not terribly effective, people ignored it," says Richard, adding that his figure of £12bn is "a far more stable" number. "We talked to every government department, we imposed the Freedom of Information Act to ensure we got answers," he says.

So what did those answers reveal? The report's main assertion is that simplification of the system is all well and good, but if you can't measure the effectiveness of a support scheme, how will you know whether it's a good idea to get rid of it or not? Richard cites his interviews with the RDAs, most of which, he claims, don't have any idea if the money they allocate to small businesses is actually appreciated or not. "Much of it is unmeasured and therefore one can't know it's true effectiveness," he says.

Richard's team also hired London-based consultants Boys Smith to try and find a correlation between business growth and business support: "They could find none," he says. "That tells me that if this stuff is effective at all it must be a small part of it and it's not going to be easy to determine which processes work and which ones don't. So when you take a big machete and cut out 2,900 of 3,000—and I know that they don't know which ones are working—it concerns me. In business you plan and then you act, you don't just act."

A priority, says the report, is to cut out unnecessary administrative costs, which, at a very basic level, mean that for every pound of government money, only 66.5 pence feeds directly into SMEs through advice and training, or loans and grants. Furthermore, there is an imbalance of expenditure between regions. "Comparing total direct assistance by region with the actual number of small businesses reveals that the direct support per small business in the North East (£1,068) is almost 10 times what it is in the East of England (£109)," reads the report. "The five regions receiving the highest payments per business are all in the North.  Those receiving the lowest payments are all in the South."

In March, Richard clashed with small business minister Margaret Hodge on BBC radio, with Hodge countering that the government knows precisely which schemes are effective and which are not. "Of course we evaluate, right the way through," she told listeners, "but I don't want to spend more on evaluation because that's more money on bureaucracy than it is on supporting businesses."

Richard argues that without proper evaluation, any further investment would in any case be wasted. "The common perception is that the complexity stops the effectiveness. There's another possibility—that people who run small businesses don't see government [as] their natural choice of support for entrepreneurial activity," he says. "I know, radical assumption... but there is a considerable body of evidence to suggest that they don't."

The report's findings back up recent IoD and FSB research into the take up of government-funded support. In particular, the FSB survey contrasted the 4.4 per cent of respondents who used government-funded support with over half who use accountants. More telling, 57 per cent of those who used accountants for advice claimed to be satisfied with the service, compared to nine per cent of those using government support services. And according to the taskforce's own research, "less than one half of one per cent of small businesses both used the government for advice and were satisfied with the advice provided," says Richard.

One might conclude that no matter how much money is spent, if the services are neither used nor appreciated, and there are better alternatives available from private sector practitioners, then the government is wasting its time trying to compete. But the comparison with private sector consultants is ill founded, according to Pat Smith, CEO of Business Link in the East of England. "The point to understand here is that we stimulate demand for accountants, lawyers and other business support professionals. So comparing levels of demand isn't the measure to look at," he says.

Smith describes his organisation's measurement capabilities as "robust", adding that "the way we measure our effectiveness would have a place in any business." Developing close relationships with local businesses, he says, enables Business Link to gauge exactly how effective it is on a case-by-case basis. "When one of our advisers sits down for a project he or she benchmarks where the company is now, agrees detailed success measures with the company for an agreed period of time and then revisits them. This is impartial business support provided in a business-like way," he says.

The Small Business Service (SBS), a DTI-backed source of advice for SMEs, is another service in the firing line. A DTI spokesperson claims "all DTI/SBS programmes and initiatives are monitored and evaluated," citing 2005 data, suggesting that "for the £300m spent, SBS had generated a positive economic impact of between £600m and £700m," a return to the economy of £2.00 to £2.40 for every pound spent on services, such as the Small Firm Loan Guarantee, Business Link, the Support to Implement Best Business Practice Grant and the Phoenix Development Fund.

As for the assertion that small businesses don't see government as a natural source of advice, the DTI prefers to let the figures speak for themselves. In the last year, it claims, SBS and Business Link have "assisted over 613,000 existing businesses, over 186,000 pre-start individuals and supported 7,000 business loans through the Small Firms Loan Guarantee." In addition, the main Business Link website attracts "an average" of 633,333 visitors per month.

Richard Ellis, chairman of the East of England Development Agency (EEDA) feels that as each Business Link's reputation for delivery grows, demand will follow. Much of EEDA's current budget is spent on putting advisers "out on the road" to enable them to get closer to entrepreneurs. Ellis says that now responsibility for each Business Link has been decentralized—last year, control switched from the DTI to the local RDAs—advice is more effective because it's more accurately targeted. "The people who are best placed to make a judgement about the type of information businesses need are those who understand in detail the nuances of the business landscape in each region," he says.

Measurement of effectiveness, he says, is about evaluating the quality of advice offered—it's a large part of ensuring the RDA hits its targets. "We are investing substantial sums in Business Link, and now that we have set up new contracts for delivery, we are evaluating its impact in terms of the quality and quantity of advice given," says Ellis.

Richard's report also criticises targeted funds, such as Regional Venture Capital Funds, Enterprise Capital Funds and Venture Capital Trusts. These are set up to help SMEs find early-stage finance, but according to the National Audit Office it's difficult to measure their impact, and take-up has been sluggish. The Small Firms Loan Guarantee Scheme (SFLGS), in which the government guarantees 75 per cent of the value of bank loans to businesses with limited assets, is also declining in popularity. Research from invoice and asset-based financier Venture Finance in April shows that just 37 per cent of the SMEs questioned are aware of the SFLG scheme and the DTI's own figures reflect a decline in demand: the SFLG loaned £225m in 2006, down from £422m in 2005.

According to Jonathan Kestenbaum, chief executive of funding organisation NESTA, and a member of Richard's taskforce, funds would be more effective if their objectives were simplified. "They start with the best of intentions," he says, "but before you know it, a dedicated source of finance is trying to do six different things. Investing is difficult enough to do at the best of times, but every time you add an additional objective, you constrain your ability to meet the original aim of the fund." A clear objective, he adds, allows policy-makers to measure impact more effectively.

EEDA's Ellis agrees. He cites the Manufacturing Advisory Service in the East of England as an example of clear objectives leading to positive results. "Here is an initiative with a clear objective: to make sure manufacturing companies can benefit from best practice in manufacturing processes and systems." EEDA's "Running the Gauntlet" initiative, he adds, "has helped nine companies secure venture capital investment totalling £2m."

This is clearly a sensitive issue. Apart from EEDA and its Business Link, Director could find no one to stand up and defend the government's small business support record. We were denied access to key government spokespeople such as small business minister Margaret Hodge, head of better regulation William Sargent and SBS chief executive Martin Wyn Griffith. Richard, an inveterate entrepreneur himself, is well aware of the political storm he's creating. But although his report is Tory backed, it criticises a system both Labour and the Conservatives helped to put in place. "I'm not loyal to either party," he says. "My loyalty is to see either one of the parties carry out the change to help small businesses. It's still out there and cannot be ignored."