Growth is possible, if SMEs are supported
by Peter Skinner
28 May 2012
If Europe is to recover from its economic slump, it will be because small businesses are leading the charge so we must give them a fighting chance – says MEP
They may not grab the headlines or feature in the adverts break at half-time, but small and medium-sized enterprises are crucial to the United Kingdom's prospects. They are the lifeblood of our economy; employing millions and generating billions of pounds while providing a huge array of services from construction to chocolate making and micro-breweries to plumbing and carpentry. Firms like Railcare, in Milton Keynes, which maintains and renovates train carriages - innovating and creating jobs along the way. Crucially, they are helping to tackle the chronic youth unemployment problem by taking on five young people a year as apprentices. They get a fair salary and practical training.
But the British government's flagship schemes are failing SMEs. The banks have taken fright and are refusing to lend. In the jargon, they are 'excessively risk averse'. Small businesses are being forced to close their doors and the coalition government is failing to act. We know that SMEs are at the cutting edge in fields ranging from fashion to information technology and their fast-paced innovation and creative thinking will be vital - if we are to secure the return to the growth and prosperity the UK needs. In the South East of England, we have 745,000 small and medium enterprises – second only to London. They are the driving force behind the region's success. Many are dependent on a strong public sector for their order books.
However, SMEs face challenging times as the economy dips back into recession and demand for their services falls. Prominent among their concerns has been the difficulty of accessing finance. Big banks are refusing to lend. Through no fault of their own, many SMEs have seen their cash flow cut off as banks take fright and leave them high and dry. Lending to SMEs has fallen off a cliff. The Bank of England's latest report stated: "Lending growth to all SMEs has been negative since late 2009." The market is dysfunctional and this is the time when government should step in, plug the gap and support small business.
But they are not doing it. The long standing Enterprise Finance Guarantee scheme has stalled with the value of loans offered via the scheme dropping from £218m in July-September 2009, to £78m in October-December 2012.British Chancellor George Osborne is now trumpeting a new project; the National Loan Guarantee Scheme. But before it has even got off the ground, serious questions are being asked about whether or not it will be able to deliver. The Treasury Select Committee has just issued a report stating that "access to finance for SMEs remains a significant problem".
In his evidence to the committee, Steve Hughes of the British Chambers of Commerce even went so far as to say that the scheme would have "little impact" and not be of "material benefit" with the primary outcome being cheaper loans for businesses that could already access finance. He added: "Ultimately, it is just giving them a bit of a bonus on the pricing of their loan. There are wider problems with the system that need to be addressed." The committee concluded by saying that the National Loan Guarantee Scheme "was not designed to solve the problem that many SMEs who may be reasonable credit risks are unable to access bank funding at all in the current unusual market conditions".
In short, it does little to address the fundamental problems that beset small business. The new support is to be welcomed, but unless the government aids access and moves to address the dysfunctions of the market - then its impact will be limited. These experiences are mirrored locally; the Hampshire Chamber of Commerce recently completed a consultation on finance with the stark conclusion that "most of the funding schemes currently are of no real use to SMEs as qualification is restrictive and processes are slow to make any impact".
While I support the government's stated goal of supporting SMEs and boosting their access to finance, the schemes must be workable and greater efforts must be made to get the market functioning again. Existing finance schemes and new ones alike must be made more flexible and speedier. A huge strength of the SME sector is its variety and fleet-footedness and that must be reflected in lending programmes.
I am also campaigning in Europe for more business support. The European Union has long-provided funding for smaller businesses, but it is often too tangled-up in bureaucracy. That has to change so that the next lot of funding will make more money available and make it easier to get. We are working on something called Horizon2020; a new pot of cash which will look to fund innovation and research driven SMEs, provide loans and guarantees to all businesses and supply finance for start-up SMEs. We intend to ensure that red tape is cut and that Horizon2020 is accessible and flexible. If the UK recovers from its current economic slump, it will be because small businesses are leading the charge. From political support to accessible finance, we must do everything we can to give them the best possible chance.
Peter Skinner is a British Labour Party MEP representing the South East of England
They may not grab the headlines or feature in the adverts break at half-time, but small and medium-sized enterprises are crucial to the United Kingdom's prospects. They are the lifeblood of our economy; employing millions and generating billions of pounds while providing a huge array of services from construction to chocolate making and micro-breweries to plumbing and carpentry. Firms like Railcare, in Milton Keynes, which maintains and renovates train carriages - innovating and creating jobs along the way. Crucially, they are helping to tackle the chronic youth unemployment problem by taking on five young people a year as apprentices. They get a fair salary and practical training.
But the British government's flagship schemes are failing SMEs. The banks have taken fright and are refusing to lend. In the jargon, they are 'excessively risk averse'. Small businesses are being forced to close their doors and the coalition government is failing to act. We know that SMEs are at the cutting edge in fields ranging from fashion to information technology and their fast-paced innovation and creative thinking will be vital - if we are to secure the return to the growth and prosperity the UK needs. In the South East of England, we have 745,000 small and medium enterprises – second only to London. They are the driving force behind the region's success. Many are dependent on a strong public sector for their order books.
However, SMEs face challenging times as the economy dips back into recession and demand for their services falls. Prominent among their concerns has been the difficulty of accessing finance. Big banks are refusing to lend. Through no fault of their own, many SMEs have seen their cash flow cut off as banks take fright and leave them high and dry. Lending to SMEs has fallen off a cliff. The Bank of England's latest report stated: "Lending growth to all SMEs has been negative since late 2009." The market is dysfunctional and this is the time when government should step in, plug the gap and support small business.
But they are not doing it. The long standing Enterprise Finance Guarantee scheme has stalled with the value of loans offered via the scheme dropping from £218m in July-September 2009, to £78m in October-December 2012.British Chancellor George Osborne is now trumpeting a new project; the National Loan Guarantee Scheme. But before it has even got off the ground, serious questions are being asked about whether or not it will be able to deliver. The Treasury Select Committee has just issued a report stating that "access to finance for SMEs remains a significant problem".
In his evidence to the committee, Steve Hughes of the British Chambers of Commerce even went so far as to say that the scheme would have "little impact" and not be of "material benefit" with the primary outcome being cheaper loans for businesses that could already access finance. He added: "Ultimately, it is just giving them a bit of a bonus on the pricing of their loan. There are wider problems with the system that need to be addressed." The committee concluded by saying that the National Loan Guarantee Scheme "was not designed to solve the problem that many SMEs who may be reasonable credit risks are unable to access bank funding at all in the current unusual market conditions".
In short, it does little to address the fundamental problems that beset small business. The new support is to be welcomed, but unless the government aids access and moves to address the dysfunctions of the market - then its impact will be limited. These experiences are mirrored locally; the Hampshire Chamber of Commerce recently completed a consultation on finance with the stark conclusion that "most of the funding schemes currently are of no real use to SMEs as qualification is restrictive and processes are slow to make any impact".
While I support the government's stated goal of supporting SMEs and boosting their access to finance, the schemes must be workable and greater efforts must be made to get the market functioning again. Existing finance schemes and new ones alike must be made more flexible and speedier. A huge strength of the SME sector is its variety and fleet-footedness and that must be reflected in lending programmes.
I am also campaigning in Europe for more business support. The European Union has long-provided funding for smaller businesses, but it is often too tangled-up in bureaucracy. That has to change so that the next lot of funding will make more money available and make it easier to get. We are working on something called Horizon2020; a new pot of cash which will look to fund innovation and research driven SMEs, provide loans and guarantees to all businesses and supply finance for start-up SMEs. We intend to ensure that red tape is cut and that Horizon2020 is accessible and flexible. If the UK recovers from its current economic slump, it will be because small businesses are leading the charge. From political support to accessible finance, we must do everything we can to give them the best possible chance.
Peter Skinner is a British Labour Party MEP representing the South East of England
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COMMENTS
I agree that funding, financing and cash-flow management are key issues. I would also suggest, having the experience of starting two successful businesses as well as assisting others in SME creation, and operating in the not-for-profit sector too, that one of the greatest needs is for each business/community group leader to have the opportunity to have access to good, quality mentors/coaches to help them through the 12 months and three-year barriers as a minimum. Funding for such assistance combined with the right mentoring/coaching - i.e. practical not theoretical - will fuel SME confidence and future growth.
Rob Stephens - Burgess Hill, England
'Big banks are refusing to lend' and 'banks have taken fright' is a very simplistic view of a highly complex economic situation. It is disappointing to see such a lack of understanding from an MEP and to use this misconceived notion as a way of attacking current government policy. This is an unhelpful article which is purely aimed at mobilising anti-government sentiment. As a Labour supporter, I am disappointed.
Mary - Dorset
