Business confidence needs to be boosted
These are strange times.
Official figures suggest doom and gloom but conversations I have
had with many businesses suggest that the economy isn’t necessarily
in negative territory, just frustratingly flat.
One thing which everyone is agreed on is that confidence needs
to be boosted – not by smoke and mirrors but by tangible and
emphatic growth measures.
We need to find room for more investment.
Now is the time for the government to look again to see how it
can increase the current level of capital spending.
The reduction to 1.25% of GDP (it used to be 4%) invested is too
much: let’s use the significant underspend across government
departments and make more of the strength of UK plc’s balance
But new government institutions are not the answer; private
sector solutions underpinned by government are more likely to be
Giving housing associations the ability to build more social
housing and boosting the New Buy initiative for first-time buyers —
so that our young people not only have affordable deposits but also
low interest payments (4 % instead of 6%) — would make a huge
difference in take-up.
At the top of the “too difficult” pile sits funding for small
and medium-sized firms. It’s a classic Catch-22. Here are the
businesses with the greatest potential to grow and create jobs, but
the dramatic rise in borrowing costs means they can’t.
The UK’s recovery depends on the ability of these companies to
invest in new staff, equipment, buildings and, more important
still, their ability to export goods and services. The trickle-down
effect would be hugely beneficial.
The Government’s Funding for Lending scheme will help in the
short term by allowing banks access to cheaper capital.
The incentive is clear: the more they lend, the more they can
get hold of. Encouragingly, a number of the big banks are already
In the longer term, many investors do not see equity as an
attractive destination for their capital, so a vital funding source
of some £30bn is largely untapped. Unlocking just some of this
could make a real difference.
Perhaps the Treasury should look at tax relief for raising
equity, putting it on a par with debt finance? Cost to the
Exchequer – approx £160 million a year – a good investment.
One thing that would give MSBs an instant shot in the arm would
be Government opening- up the Enterprise Investment Scheme (EIS) to
At the moment the cap on the number of employees and level of
investment make it too small for this type of company to
Larger companies can also invest in their supply chain. Many of
them have substantial cash reserves on their balance sheets but
need encouragement to invest it. Reinstating a corporate venturing
tax incentive would to help to make this happen.