Business Secretary Vince Cable is joined by CBI Director-General John Cridland, Risk Capital Partners’ Luke Johnson and Investec chief economist Phil Shaw for Entrepreneurs’ Question Time.
Question: If there really was a need for a £2.5bn Business Growth Fund for £10m+ turnover businesses, wouldn’t it already have been created by the private sector?
Vince Cable: “We don’t run it – it’s a private operation using private capital. We support it, but we’re not involved in it. There is a gap in the market, it’s long been identified and goes back to the inter-war period.
“It’s the Mittelstand companies that have always had problems to gain equity finance. These are companies that find it difficult to do a floatation because of the costs, can’t raise bond issues, don’t want to be reliant on bank lending and overdraft financing. There is a gap in the market, and it’s never been filled.”
Luke Johnson: “I actually think the whole thing’s a PR stunt. There is no gap for £2m-£10m funding. There’s at least 60 organisations that already provide that sort of capital. There’s a shortage of startup money and angel money. But Vince has got that figure – that 90 per cent of all angel money is in Scotland – simply wrong. It’s fantasy. I’m actually in the business of organising at least 50 angel investments a year, I’m on the sharp end. It’s just disappointing for you to just repeat this stat on stage, you should get your researchers to do more work.”
Vince Cable: “The issue isn’t the numbers, but what we do to stimulate it. The Budget already made good changes to the EIS system, but we’re still open to suggestions on how to get investment flying.”
Question: Isn’t the real issue about diversity of the banking system itself? There are just four significant players, shouldn’t the focus be on breaking up the market and making it more competitive?
Vince Cable: “There are two parts to that. The Merlin Agreement was an understanding where the government would give the banks the benefit of the doubt on the tax front, in return for a really strong commitment to lend to SMEs. And the PM, the Chancellor and myself have made it very clear that if they don’t deliver, we’re not obliged to meet our side of the bargain too.
“But you’re right, it isn’t about us threatening the banks, it’s about changing the ecology. Some good banks are coming in – such as Svenske Handelsbank – and others are trying to get into the market, but it’s happening very slowly because they don’t have a branch network.”
Luke Johnson: “The single-biggest hurdle to new banks is the FSA. The irony is that the FSA is being even more careful because of the crisis. But it’s not much harder than ever to start a new bank. More competition is needed so that banks up their lending to SMEs.”
Question: You’re creating a moratorium on red tape for startups and companies with fewer than ten employees. If it works, would you consider extending it to larger companies?
Vince Cable: “We’re largely open to that. I’m very anxious that we don’t make the mistake of announcing a war on red tape and then seeing nothing happen. We have to deliver it correctly and produce results, in the areas that we’re targeting.”
Question: How can we make sure that money is spent by government in the best way possible? How can government spend our tax money in the right way?
Luke Johnson: “Obviously, the best way is to encourage serial entrepreneurs to make enough money on capital disposal, so that means keeping CGT at a level that encourages them to stay here and invest, rather than pushing them to become tax exiles. Stay here and back startups and early-stage businesses. Ultimately, if we want gazelle businesses, they have to start somewhere. A lot of them need to be initiated, and we need sensible regulation and attractive tax rates that will stimulate investments.
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