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News - 31 October 2009
Matt Goodman

Government support for small businesses is vital for the economy

Government support for small businesses must not be sacrificed in public spending cuts, says FPB.

The Forum of Private Business (FPB) has warned the Government not to sacrifice its support for small businesses as part of widely-anticipated spending cuts to plug the gap in public finances.

The forecast for public sector net borrowing by the end of 2009 is £185 billion, meaning substantial spending cuts will be required in order to plug the gap.

In view of this, the FPB has submitted its proposals for ‘responsible growth’ ahead of the Pre-Budget Report, which is expected to take place in November. Measures include improving existing support schemes, reducing small firms’ corporation tax, tax incentives for micro-businesses recruiting staff and introducing a comprehensive regulatory review.

“Despite recent suggestions that the economy is heading out of the woods, it is clear there is still a difficult road ahead. Government cuts should not include those programmes that are making a real difference for struggling firms,” said the FPB’s Policy Representative, Matt Goodman. “The next 18 months will be crucial. As the main drivers of growth, small businesses need to be placed at the heart of plans for economic recovery so they can make the most of future opportunities.”

“At the same time, the Government will have to consider the impact of recession on public finances. We believe our proposals are a cost effective path to responsible growth.”

The FPB is concerned that support programmes such as the Enterprise Finance Guarantee (EFG) and Trade Credit Insurance (TCI) top-up scheme, both of which have been extended recently, could be cut back in the name of fiscal responsibility.

Instead, work on a successor to the EFG should be prioritized, with the existing scheme set to expire in March 2010. Following the Government’s recent revelation that it plans to set up a National Investment Corporation with over £1 billion available, combining several different forms of finance could provide a more targeted solution for many different strands of small business funding.

The take-up of the TCI top-up has so far been disappointing because of the tight qualification criteria and relatively steep costs. The FPB believes that the £5 billion set aside for the TCI, and a percentage of funding earmarked for the Government’s Working Capital scheme, could be channeled into more effective initiatives.

Despite many commentators predicting the economy had already come out of recession, the latest figures show that GDP has fallen by 0.4%. Far from reducing the support that is available, the FPB believes that more must be done to help struggling small businesses survive and plan for the future.

Research carried out by the FPB shows that confidence among small businesses is high, but tempered by fears over finance and cash flow.

The FPB’s latest quarterly Referendum survey, entitled ‘Preparing for Growth’ found that almost half of respondents (47%) expect to see an increase in trade over the next year.

According to the research, 13% of the firms surveyed are already seeing an upturn in their order books, while a further 15% expect an increase in sales over the next three months.

In addition, 45% expect to expand their business over the next year and 37% intend to take on new staff by September 2010.

However, 77% of the businesses surveyed said the terms and conditions of lending had worsened during the last calendar year.

Just 4% of FPB members said they had seen access to working capital improve in 2009, with 58% believing it had worsened. Of those surveyed, 65% said it was harder to access finance for growth and 68% said the cost of finance had increased.

When asked how the issue of finance could be improved, 36% of small business owners said they wanted a reduction in the cost of lending. Further, 27% said greater flexibility in negotiating and adapting terms and conditions to meet the changing needs of their business would be welcome.

Additionally, 26% called for more simplicity in lending arrangements and 22% wanted a reduction in the time they spent complying with the requirements of the funding. Greater competition and choice in the marketplace was also listed as being desirable by 20% of respondents.

Small businesses also need an environment in which tax and regulation are conducive to success, not restrictive.

Other research from the FPB shows that small and medium-sized businesses spend almost £12 billion on the forms, provisions and paperwork associated with complying with regulations. On average, the UK’s smaller businesses lose around 37 hours of company time each month struggling to keep up with their government-imposed obligations.

The business support and lobby group believes that a comprehensive review of regulation – in the spirit of the comprehensive spending review – with a moratorium on new regulation imposed on small businesses until the review is completed, should be introduced.

In order to ease the burden of tax, the FPB is calling on the Government to scrap its planned increase in small firms’ rate of corporation tax and reduce it to 20%, to delay reverting VAT to the 17.5% rate, which would hit firms at precisely the wrong time, and to ensure the automatic enrolment for small businesses rate relief so that all eligible businesses are receiving the support that has been earmarked for them.

Further, the FPB wants a 12-month reduction in National Insurance Contributions (NICs) for businesses with fewer than 10 employees which take on new staff, a cut in VAT on labour-intensive services to boost employment and a delay in the planned 0.5% increase in NICs from 2011 until the economy has recovered sufficiently.

Businesses also consistently tell the FPB they need better support for staff skills and training, particularly as they look ahead to recruiting new employees when the economy recovers.

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Forum of Private Business
Goodman, Matt

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