The original green paper was an impressive document, not least for acknowledging bank financing of SMEs cannot be relied upon: “The credit risk of the borrower is also a key element of loan pricing. Since the financial crisis, there has been a reassessment of the creditworthiness of borrowers and the expected risk of business loan defaults, leading to higher spreads on loans. To some extent, this is part of a necessary structural adjustment, following the under-pricing of risk on many business loans in previous years. SMEs heavy reliance on bank credit means they are particularly vulnerable to such swings in risk appetite.” [Paragraph 3.24]
The paper went on to ask 17 very pertinent questions of which, pleasingly and rightly, only two related to bank finance. More than 180 responses to these questions were received from a wide range of institutions and individuals. I particularly liked the one from Quoted Companies Alliance, which set out to argue the importance of equity finance, the need to encourage private investors, and to underline the dangers of getting into bed with our fairweather banks.
Anyway Vince Cable and co have chosen to ignore just about all of that, prefering to plump for long bouts of platitudinous verbiage about how the banks must be encouraged back into the SME space and the creation of various talking shops, all rounded off with the usual Whitehall speak that the government “will monitor developments closely”.
Why such a damp squib? The answer is to be found in the following paragraph: “Seven major UK banks, working through the British Bankers’ Association (BBA) to form the Business Finance Taskforce are also supplying the provision of equity finance to small and mid-sized businesses, through a new £1.5bn Business Growth Fund.” And also in this one: “The government will be establishing a network of growth hubs to provide strategic advice and coaching to SMEs. The BBA is also funding and implementing a national network of business mentors.”
So, down at the BBA, its clever chief executive Angela Knight has managed to turn Cable and co’s heads by spending a few bob. Why, even that other bad boy of the credit crisis, Goldman Sachs, has got in on the act, as the government response paper lovingly points out that: “Goldman Sachs is now piloting a small business support programme in Yorkshire and Humber”!
So much, then, for reforming CGT to re-energise the private investor. So much for a discussion of the role of the FSA (see my earlier article). Yes, it’s back to business as usual for our big financial beasts.
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