The government's Small Business Service is unable to prove its usefulness, according to a new report.

A study from the National Audit Office also said the government must better understand its impact on small firms if they are to thrive.

The public spending watchdog said the Whitehall agency is not getting enough information from the government to properly carry out its role, and is unable to assess and report on the progress of the government's action plan for small business, launched in January 2004.

Stakeholder Response: IoD

Richard Wilson, head of business policy at the Institute of Directors, said: "The IoD warned when the Small Business Service was first set up that it would not be able to provide a strong voice for business in Whitehall, that it would not be able to stem the avalanche of red tape and that it would have difficulty in improving the coherence of government support programmes for small businesses.

"Today's National Audit Office report confirms some of our original concerns.

"A recent survey of IoD members showed that the three main factors holding back their businesses were the regulatory burden, onerous taxation, and skill shortages and skill gaps amongst employees.

"The Small Business Service is incapable of addressing these concerns. As an executive agency it simply lacks the authority and power to lighten the regulatory burden.

"The problems of taxation and skill deficiencies are primarily the responsibility of the Treasury and the Department for Education and Skills.

"Ministers should never have charged the SBS with grandiose objectives without providing the organisation with the resources and authority to match.

"The government can help small businesses by getting the 'big ticket' issues right: easing the regulatory burden, cutting taxation and improving education and skills.

"Small business does need a voice in government. The responsibility of ministers is to listen to the concerns of small business and stand up for them in the corridors of power, rather than expecting institutions such as the SBS to do their work for them."

Stakeholder Response: FSB

A spokesman for the FSB told ePolitix.com: "We are not surprised about the NAO's findings. The main problem for the Small Business Service is that most small businesses don't know about it.

"A survey of FSB members found that only four per cent had ever used any form of government advice service, including the Small Business Service.

"It is clearly not doing a good enough job of reaching out to the people it is supposed to be helping, despite the fact that much of the advice and information it provides is of a high quality."