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An open letter to chancellor Philip Hammond: Is that it for SMEs?

Philip Hammond has unveiled on plans to ensure SMEs are referred to other lenders after bank rejection, but Barry James is not happy in his open letter.
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Dear chancellor, via this open letter, I’d like firstly congratulate to you on your new role – but I’m afraid that the honeymoon may be over already, after your announcement last week.

Please don’t get me wrong –  there’s a lot to agree with in what you say. The trouble is not the fine words but the outcomes and actions – or lack of them.

When you say “small and medium-sized businesses are the backbone of Britain’s economy and it is right they have access to a wide range of sources of finance” we could hardly agree more.

Not that you’re alone – rather the latest in a long line of chancellors to, acknowledge that so called small companies or “SMEs”  are the backbone of the economy.

However the point of the announcement, which was to bless three loan aggregation sites after a wait of three years to do something about the big-banks absenteeism, was frankly pathetic.

To quote – as your press release did – Keith Morgan, CEO of the British Business Bank “This new government initiative, supported by the British Business Bank, has the potential to make a real difference to smaller business finance markets in the UK. It gives businesses additional opportunities to secure funding, alternative providers access to a bigger market of potential clients, and major banks an extra service to offer their business clients when they cannot themselves provide finance.”

While we can take pretty much all the help we can get after three years these are three loan aggregation sites all doing much the same job (which could have been built in three weeks at a push) rehashing and rewarming loan application: pathetic.

Characterising this as a “reform”, as your press release goes on to do, is misleading as well as pathetic. Just like the idea that this is supposed to make a “real difference” to businesses across the UK while turning up the burner under the alternative finance sector. It will do nothing of the sort. I’m sure it will be favoured by the alternative lenders as it will do their business no harm but it certainly won’t transform them – much less the “backbone of the economy”.

So, let’s use this open letter to get this in perspective. Let’s remind ourselves, from the government’s own figures, which is the biggest employer in the UK (apart from government, obviously). The NHS? Amazon? Google? Guess again – it’s us, the self-employed. If we include so-called micro-companies, that’s up to ten people, then we’ve long overtaken even the government.

So I’d suggest it’s time for a bit of a rethink – both about this government’s “industrial strategy” on both the “backbone” of the economy and on “access to finance” – bringing them into this century.

Because the truth is that while this may help a little at the margins, those who were borderline but have assets against which to lend, it does nothing for the vast majority of small businesses that receive only lip service from government – which only just got around to appointing a minister for this subject. And although Margot James is the fifth incumbent in quick succession in the post we’ve seen no advocacy worthy of the name and certainly no policy shift that would acknowledge the huge role that we now play.

According to the government’s own figures:

  • We employ almost half of all the people that are employed in the UK outside government
  • We constitute almost all the companies in the UK over 99 per cent
  • We contribute a huge chunk to GDP – far more than any other sector
  • Considering we do not enjoy economies of scale we are amazingly productive compared with the behemoths – and could soon overtake this group with a little support

We do not go cap in hand to government when things go wrong, or just not the way that we wanted, like Nissan or the banks. In fact, we’re largely ignored, and to be frank generally disregarded, with all these jobs treated as if they were-none jobs. Unstable even irrelevant. As if corporate jobs can ever again be considered stable and reliable in the face of automation and the increasing waves of downsizing resulting from this – not to mention the likes of Woolworths, Comet and now BHS.

This was all predictable. In fact some of us did predict it, and acted on the prediction. I bet my career on it. Back as far as 1989, and after various rounds of redundancies at my corporate employer (a Big-Four high street bank) I concluded that there was no longer any such thing as a secure corporate job and that if security was to be found anywhere it was, well, elsewhere. Since then I’ve been employing myself and others, which is part of why I’m writing this open letter.

Wind forward to 2016 and getting on for half the economy have joined me, and the trend can only now accelerate further in the face of increasing automation, AI, bots and robots. If we are to have jobs most of them will come from creating them ourselves. People creating their own livelihoods, defining their own role.

Government has failed to grapple with this trend, which has been on the increase ever since the internet became ubiquitous. Yet Steve Jobs predicted this decades back. He saw that in the future jobs, firms, employment and work would be fluid and networked. He’s now being proved right, but the stereotyped glasstowers, stable jobs and glossy roles – as against the “Del Boy” image so often created for us by the media – are misleading us all, not least government. We need to change the way we think about the economy.

It’s time for a new understanding and picture of the economy. My open letter is about emphasising it’s time to start treating micro, self-employed and small businesses as real business and real employers – and with the respect we deserve in the light of our contribution to the economy.

We may not be able to lobby like the banks and big businesses (yet) but this entitles us to no less respect or consideration in the light of the increasing role we will inevitably play in the future of the UK and world economy.

So anointing two or three loan aggregation websites largely driven for the benefit of government’s preferred suppliers is no substitute for the radical rethink that is needed in the face of an economy changed forever in its nature and granularity by digital and the Internet.

This is the new environment. It’s not online vs. offline. It’s hybrid – it’s both. It’s new, it’s different, get over it. It means the economy is already becoming cellular – increasingly composed of individuals employing themselves and small and micro companies.

But we need funding and proper support as well as recognition. I’m urging you to forget the lip-service and pathetic PR in this open letter. We need new models to make this happen and really provide real new routes to funding. Funny thing is, they exist – but appear nowhere in the plan or your statement on this minuscule innovation. This is also perpetuating the old myths. Lending alone, even with some carefully chosen alternative lenders added to the mix (which largely consists of the usual suspects, pretending they’re doing their bit, likeRBS, Lloyds, HSBC, Barclays) is not the answer – it won’t even scratch the surface.

It’s time for the government to start to understand the economy as it is rather than as it was and backup fine words with at least decent and adequate actions – based on a new “industrial strategy” grounded in the real world of 2016.

This is all why we are holding a conference on modernising access to finance later this month at London South Bank University, when, with representation from many of the Growth Hub from around the country as well as the Institute of Chartered Accountants and many others, we’ll be talking about the new routes that now exist – via trails blazed by the likes of BrewDog (which will be joining us) and hearing from FormCard’s Peter Marigold. He’s got a business which has been fully funded and taken off without grants or the need for a penny of debt to banks or other lenders.

We want to start a conversation that really will help make Britain the best place to start, run (and fund) your own business. Aggregation sites may benefit the suppliers a little but they won’t do this. Adapting to the new world of opportunity opening up because of this new environment can and will.

Please take this as an open invitation for both you and “small business minister” Margot James to join us on the 24 November to start a debate could deliver real change, many tens of thousands of sustainable jobs and real growth.

To build an industrial strategy grounded in the real world of 2016 and beyond – not in glass and ivory towers and the past. See you there?

Yours sincerely,

Barry James

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About Author

Barry James

Barry James is a published writer/author and expert in fintech, funding and finance with a diverse background including psychology, entrepreneurship and technology. He created and chairs Crowdfunding:Deep Impact, the UK's first annual conference on the subject and founded The Crowd Data Center, the world's largest repository of data on crowdfunds.

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