It is no surprise that there has been plenty of bluster and noise made by the coalition government in regards to supporting and encouraging small business. Small-to-medium enterprises make up 99.9 per cent of the UK’s private sector, just more than half being private sector employment. In turn, they create 48.8 per cent of the entire private sector’s turnover (around £1,500bn just from the little guys). They may not be household names, but the British economy relies just as much on smaller companies as it does on the massive ones.
The government, especially so with Vince Cable and George Osborne, have made it clear that they want small businesses to flourish. Ever since being in power, they have started quite a large number of ideas to boost the economy.
Here is a list of some of those:
As you can see, the Tories and Lib Dems love a good scheme, especially if it involves loans and guarantees. It’s a fairly impressive list really, including lots of things to help out existing companies and those thinking about starting their own. The thing is, are any of them actually of use? Are they not just hot air expelled to give the impression of effort on the part of the government? Let’s take a quick look at these ideas.
The EFG works to use government guarantees to allow businesses to get loans they previously had no access to, due to not meeting the bank’s financial security conditions. The SEIS offers a variety of tax reliefs to early level companies, giving them a bit of stability.
The NLGS also offers government guarantees but in this case, to lower the borrowing rate of a loan. The FLS helps to encourage banks to borrow from the Bank of England as long as that money goes to UK companies and households.
The Small Business Bank is a bit unclear at the moment. Osborne said it would lend money through existing banks, while Cable says it will loan directly. At one point, it was even suggested it would have a high street presence. The peer-to-peer lending scheme will use internet sites like Zopa and Funding Circle to match up taxes with private money, offering it at low rates and thus avoiding banks. Finally, the SLS offers young entrepreneurs (now 16-30 year-olds) loans of around £2,500.
So, there you go. It is all go it seems. Well, sort of.
There is a distinct division within these policies. On one side, you have schemes that encourage businesses to go to the banks and on the other, to find another route. Here, the differences between the Chancellor of the Exchequer and the Business Secretary are laid bare, especially so with the Small Business Bank.
One wants banks to be as involved as ever in lending and the other wants to remove them from the equation. How can a government construct a truly effective response to the recession when the two men so intimately involved are at barely concealed loggerheads? It seems the bank will not be out on the streets, but will lend in other ways. There is little concrete information on it as Cable seems to have gone quiet on the subject since it was announced.
So, have these measures done much to help? Apparently not. According to that survey, nine out of ten business owners have said these policies have done little to help them. From what looked like a good attempt at bolstering the economy, kind of falls through with a bit of a digging. The Coalition has talked tough, but has ended up sounding confused and effectively weak. What hasn’t helped has been Osborne’s inability to reign in larger companies in regards to their tax. Companies like Starbucks have been bent by public pressure to bother paying anything close to a substantial amount. In turn, smaller companies have not been so lucky.
HMRC have recently stepped up their drive to make sure they get every bit of tax out of SMEs that they can. That is the encouraging message the government wishes to give to British small businesses and entrepreneurs; when you start we’ll hit you hard. Once you get big enough we’ll take you out for nice lunches and let you off your tax as a reward.
What is it the government could do?
Well, for a start, they need to put together a clear and concise approach to encouraging and growing the small business industry, ensuring it doesn’t decrease. Either Cable or Osborne needs to take control of the issue rather than floating around, each acting like buddies walking down apath that ends with the words,”Et tu?” This is not a problem that will be solved with tit for tat policies that later have to be carved to fit with the next ones. Once the Small Business bank has some form, it will be susceptible to this bickering. £1bn has been pledged to it, so let’s hope that does not go to waste.
The next thing would be to make a concerted effort to sort out HMRC. It is inefficient, ineffective and, at times, utterly incomprehensible. SMEs struggle all the time to get information and have problems resolved thanks to the labyrinth that is HMRC’s call centre structure. In a recession, people don’t have time to spend half an hour on hold only to be referred to another number. It will be a mountain of a task, but not impossible. The introduction of RTI next tax year is a good example; it might cause a few problems at first, but it will use modern technology to save companies time. With more of this innovation, we could see a burden being lifted off the shoulders of the smaller business person.
There is no easy solution, but a bit of structured confidence will go a long way; much better than a string of policies that are confusing and conflicting. The government, it seems, are more interested in keeping the big guns sweet, although Cable might be a little more sincere. Unfortunately, for the time being, he floats on the outskirts occasionally managing to grab a hold onto Osborne’s jacket to exert some influence. In the end though, Chancellor trumps Secretary.
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