04/01/2011

The Coalition Government has had some bumps in the first six months, not least in its SME policy. Paul Maloney, Senior Associate in All About Brands public affairs and a former parliamentary aide to Nick Clegg, argues that despite some high profile set-backs progress is being made.

The news of a Royal Wedding in the latter half of November served as a welcomed reprieve for many Britons, fatigued by the endless news about the dire state of the UK’s economy. It was as if people forgot there was a recession for a moment and frankly it was nice to read something other than economic doom and gloom on the front pages.

Despite this momentary hiatus, the news cycle quickly reverted to its default position. This was thanks to a misinformed comment by the newly appointed Enterprise Advisor to David Cameron. In his interview Lord Young let slip that Britons “had never had it so good.” This was followed by his relatively swift resignation and the torrent of Labour and Trade Union condemnation over the comment.

Despite his gaffe and the embarrassment caused to the coalition government, SMEs in the UK needed a champion to help take their cause to the heart of government. Something previous governments ignored.

SMEs are vitally important. “Today’s small businesses are tomorrow’s big businesses.” This recession will eventually end and future economic growth will depend on what landscape is left to build on.

The UK is currently home to 4.8 million SMEs, providing 60% of the private sector jobs and half of the UK’s GDP, with small firms collecting and paying NICs, tax and VAT all which go towards paying for vital public services. The Government needs them to be successful. SMEs are the “backbone of Britain’s economy.”

In the coalition agreement document “The Coalition: our programme for Government” both David Cameron and his Liberal Democrat counterpart Nick Clegg highlight the new government’s intention to take urgent action to boost innovation and enterprise, make it easier to start a new business and reduce the burden of red tape.

So after 6 months in power what has David Cameron’s government achieved for Britain’s SMEs?

There were initial quick fixes for the government in the early days of power. These included a commitment to reduce small profits rate of corporation tax to 20%. In addition bureaucracy reducing measures such as a one-in-one out clause on regulation helping to reduce the bureaucratic burden on SMEs. In 2009 it was estimated that SMEs in the UK lost £2.4bn from red tape that depleted them of much needed revenue.

The government has also signalled that SMEs will have fairer access to the bidding process for government work in the future, when in the past they have been frozen out. Currently on 16% of government department contracts are awarded to SMEs. Vince Cable intends to increase this to 25%. One suggestion as why SMEs are losing out is that civil servants that sign off contracts are easily star struck by heads of larger companies, at the expense of the more reasonable and innovative SMEs.

One area where the government is looking to invest and help SMEs is in high growth industries such as energy, digital and sustainability sectors. A £200m Enterprise Capital Fund has been earmarked to support SMEs in this sector over the next four years. A network of ‘growth hubs’ will provide these businesses specialist support to help them grow.

According to the Federation of Small Businesses (FSB), SMEs are responsible for 64% of commercial innovations. Recognising this, the government has pledged a further £200m towards establishing Technology and Innovation Centres (TICs). TICs will bridge the gap between higher education and research facilities and business. Allowing businesses to take advantage of new innovations and "take them from the drawing board to the market place.”

But in seeking to enable and encourage SMEs - the major obstacle still comes from the lack of credit and finance from the banks - a number of which are state-owned.

There have been a number of stories about banks failing to extend credit facilities to business, in some cases, credit facilities have been withdrawn or charges disproportionately increased.

Money is critical when starting, developing and maintaining a business. The government since taking power has made making the banks lend to business a priority. Vince Cable, the Business Secretary, the most vociferous critic of the banks, when in opposition, has quickly moved to force banks to lend to cash starved businesses.

To address the lack of access to finance the government has extended the Enterprise Finance Guarantee Fund (EFG) for the next four years. This £2bn fund will be available to viable small companies that have little or no credit history and or collateral.

The banks have also acted to aid businesses seeking access to capital. Something they were reluctant to do. The £1.5bn Business Growth Fund that is paid for by major UK banks such as Santander and Lloyds. This scheme originally proposed by the previous Labour government and that was unpopular with the banks when first suggested. With the threat of banking reform by the new coalition government the banks have acted independently in establishing this fund.

The Business Growth Fund will look to help around 75 businesses a year with a turnover between £10m- £100m by supplying £2m-£10m in finance in return for equity stakes in the business.

The idea of building a two-way dialogue between government and SMEs is important, the benefits for SMEs being heard and having influence on the policy agenda is hugely beneficial to the government and vice-versa.
The coalition wants to create an enabling environment that in the grand scheme of things wants “get out of the way of business.” Listening to SMEs is a great way to start.

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