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Support for small business Standard Note: Last updated: Author: Section SN/BT/2992 13 July 2012 Marguerite Page Business & Transport Section Government policy on support for small business has been evolving in the current economic downturn. This note covers existing arrangements and schemes introduced under the previous administration. Contents 1  2  3  4  Business Link and other websites Current arrangements Current government policy on access to finance Schemes initiated by the previous government 4.1  Budget, March 2010 4.2  Pre-Budget Report 2009 4.3  Budget, April 2009 4.4  Announcements in January 2009 4.5  Pre Budget Report, November 2008 4.6  Announcements in October 2008 4.7  Budget, March 2008 5  6  7  Business Support Simplification Other developments Conservative policy prior to May 2010 2  2  3  5  5  7  8  8  9  10  10  10  12  12  This information is provided to Members of Parliament in support of their parliamentary duties and is not intended to address the specific circumstances of any particular individual. It should not be relied upon as being up to date; the law or policies may have changed since it was last updated; and it should not be relied upon as legal or professional advice or as a substitute for it. A suitably qualified professional should be consulted if specific advice or information is required. This information is provided subject to our general terms and conditions which are available online or may be provided on request in hard copy. Authors are available to discuss the content of this briefing with Members and their staff, but not with the general public. 1 Business Link and other websites The most widely used source of advice for small businesses is the Business Link website. 1 The site includes listings of organisations providing advice to SMEs, and a search engine for businesses interested in attracting national or regional government assistance. 2 There is a search tool intended to help business ascertain which funding is right for them : Business Link, Identify the right types of funding for your business There is general information on Government support for business at the website of the Department for Business Innovation and Skills (BIS). Further tailored information is available at J4B, the internet-based directory of local, national and European grant sources. 3 This provides a search engine which allows the site to provide specific grant information depending on the type of business 2 Current arrangements In addition to the thousands of grant and finance schemes delivered at local or national level, measures to improve access to finance delivered via banks have been implemented by the current and previous Governments. The current schemes providing financial support for small firms by the current Government are as follows – • • • • • • • • • • Enterprise Finance Guarantee (EFG) Enterprise Capital Funds (ECFs) Business Angel Co-Investment Fund Business Finance Partnership (BFP) Seed Enterprise Investment Scheme (SEIS) The National Loan Guarantee Scheme (NLGS) Community Investment Tax Relief Tackling Late Payment/Promoting Prompt Payment National Loan Guarantee Scheme GrowthAccelerator HMRC runs the Business Payment Support Service which is designed to meet the needs of all businesses and individuals who are experiencing difficulties in paying the tax due in full and on time. 4 1 2 3 4 Business Link Business Link, Grants and Support Directory J4B http://www.hmrc.gov.uk/payinghmrc/problems/bpps.htm 2 In addition to this in March 2012 HMRC published a guide entitled ‘Making Tax Easier, Quicker and Simpler For Small Business’ . 5 3 Current government policy on access to finance A document entitled ‘Government Funded Business Support: A Guide for Business’ was published in March 2012 by the Department for Business, Innovation and Skills (BIS) which outlines current government policy on access to finance and support for small businesses. 6 The 2012 Budget contained information about Government moves to provide support and finance for small businesses. 7 The National Loan Guarantee Scheme 8 is a major cornerstone of their policies to help small firms access finance and support. Under this the Government will provide up to £20 billion of guarantees to banks, allowing them to borrow at a cheaper rate. The benefit banks receive will be passed through in its entirety to smaller businesses. Businesses that take out an NLGS loan will receive a discount on their loan of one percentage point compared with the interest rate that they would otherwise have received from that bank outside the scheme. In addition to this the Government put forward measures to • improve and reform the Enterprise Management Incentive scheme (EMI), which helps SMEs recruit and retain talent, by providing additional support to help start-ups access the scheme, consulting on amending restrictions that currently prevent the scheme being used by academics employed by start-ups, and more than doubling the individual grant limit to £250,000, subject to State aid approval and; conduct an internal review to examine the role of employee ownership in supporting growth and examine options to remove barriers, including tax barriers, to its wider take-up; implement its credit easing programme and expand the finance channels available to smaller business; • • The Budget also addressed the issue of small businesses taxation. It was announced that from April 2013 the Government will introduce a new cash basis for calculating tax for small unincorporated businesses. The Government will consult shortly after Budget on the details of the scheme including on extending eligibility to businesses with turnover up to the VAT registration threshold of £77,000. This will benefit up to three million small businesses, reducing the time it takes for them to calculate their tax. In January 2012 the Government invited the first round of proposals for the Business Finance Partnership (BFP). 9 It is intended that this will to help businesses access non-bank finance. The Government intends to invest up to £700 million of the £1 billion initially allocated to the BFP with some or all of a shortlist of seven fund managers, subject to further due diligence and the completion of private sector fundraising.32 The Government has also allocated an 5 6 7 8 9 http://www.hmrc.gov.uk/budget2012/sme-4756.pdf http://www.bis.gov.uk/assets/biscore/enterprise/docs/s/11-776-solutions-for-business-government-fundedbusiness-support.pdf http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf http://www.hm-treasury.gov.uk/nlgs.htm http://www.hm-treasury.gov.uk/press_09_12.htm 3 additional £200 million to the BFP, making a total of £1.2 billion, and will invite further proposals later this year. In addition, the Government will allocate £100 million of the BFP to invest through nontraditional lending channels that can reach smaller businesses, which could include peer-to-peer platforms and supply chain financing. The Department for Business, Innovation and Skills will request proposals from these channels in May; will incentivise lenders to lend more to smaller businesses under the Enterprise Finance Guarantee (EFG) scheme, by raising the level of lenders’ EFG portfolios to which the Government guarantee applies from 13 per cent to 20 per cent for 2012–13; welcomes the report of the industry review of non-bank lending chaired by Tim Breedon and will take forward its recommendations over the course of this year, including: considering how to simplify access to Government support for smaller businesses; encouraging prompt payment by larger firms; and supporting industry work to remove barriers to alternative sources of finance; and welcomes commitments by the banks to: publish an independent review of the lending appeals process; improve training for relationship managers; review the effect of credit ratings on start-ups and businesses switching banks; establish a system for referring unsuccessful loan applicants to Community Development Finance Institutions; and extend their national mentoring scheme. These measures build on the work of the British Bankers’ Association’s Better Business Taskforce. A press release from the Department for Business, Innovation and Skills on 26 July 2010 also gives information about current policy: Small Businesses (SMEs) 3.5 A dynamic, growing SME sector has the potential to make a significant contribution to economic growth. SMEs are a vital part of the UK economy. There are around 4.8 million businesses in this category (99.9 per cent of all UK businesses), accounting for over half of private sector employment and turnover. 3.6 SMEs have generally experienced greater difficulties than their larger counterparts in accessing finance primarily due to the higher risk they represent, especially those without a significant credit history or track record. 3.7 Around a third of SMEs do not use formal sources of external finance at all, relying instead on retained earnings or personal finance to fund investment and growth. Those SMEs that do seek external finance are almost entirely reliant on banks, in the form of bank loans, overdrafts or other working capital products such as invoice discounting or factoring. Only around 2 per cent of SMEs use external equity as a source of finance. 10 3.8 The barriers preventing some viable SMEs from accessing finance include the following: • bank lending: lenders struggle to assess the viability of a loan to some SMEs lacking a sufficient track record or security. To assist these businesses, the Government has had in place since 1981debt guarantee schemes of varying shapes and sizes, first the Small Firms Loan Guarantee scheme and then from January 2009, the Enterprise Finance Guarantee (EFG). . To ensure that more businesses have access to credit as the economy recovers, the June Budget announced an extension of £200 million to the Enterprise Finance Guarantee scheme this year, enabling additional lending of £700 million for around 7000 small businesses to 31 March 2011; 10 Finance Survey of SMEs, February 2010, IFF Research (published by BIS) 4 • equity finance: the cost of due diligence for private equity investors is more or less a fixed cost irrespective of the size of the deal. As a result, the tendency is to favour larger investments in later stage businesses at the expense of some viable SMEs with high growth potential. Recent research 11 suggests there is an ‘equity gap’ for the majority of SMEs seeking equity finance in the range of £250,000 to £5 million, which is below the minimum investment level most private sector funds are willing to consider. In the case of sectors requiring complex research and development or large capital expenditure, the upper boundary of the gap may extend up to £15 million. This is likely to impact most on innovative businesses with high potential for growth. The June Budget announced the launch of a new Enterprise Capital Fund to provide an extra £37.5 million in equity finance to innovative small businesses with high growth potential, as part of a programme of similar funds. The Government has also invested in the UK Innovation Investment Fund, which is one of the largest technology Fund of Funds in Europe investing in growth areas such as life sciences, clean technologies, digital and advanced manufacturing. Finally, broader tax-based schemes like the Enterprise Investment Scheme and Venture Capital Trusts help to encourage equity investment in small companies; and • growth capital: the Rowlands Review 12 identified a gap in the supply of finance of between £2 million and £10 million for established businesses looking to grow. The June Budget announced that the Government would create a Growth Capital Fund. This will address the Rowlands Review findings that, for some established SMEs, there are gaps in market provision of growth capital, with this problem exacerbated by the recession. 3.9 There is evidence that smaller businesses undervalue the benefit of external advice, leading to an under-appreciation of the range of finance sources available to them. Findings from the Global Entrepreneurship Monitor survey 13 suggested that the inadequacy of investment propositions was the main reason why investors were unwilling to invest at the lower end of the equity market. 3.10 Despite these issues, the evidence suggests that the majority of SMEs seeking external finance can currently obtain some finance. Survey evidence from 2009 suggested that 78 per cent 14 of SMEs managed to obtain some finance from the first source approached. However, these companies may not have obtained all the finance they required and other survey evidence from 20097 suggests they may have funded themselves through sources such as credit cards or consumer overdrafts. 15 4 4.1 Schemes initiated by the previous government Budget, March 2010 The Budget 2010 in March set out the following measures: • • The provision of a temporary increase in the level of small business rate relief. The launch of UK Finance for Growth to oversee more than £4 billion of the Government’s SME finance products including the Growth Capital Fund. 11 12 13 14 15 The Supply of Equity Finance to SMEs: Revisiting the “Equity Gap”, December 2009, SQW Consulting (published by BIS) Rowlands Review: The provision of growth capital to UK SMEs, November 2009, BIS Global Entrepreneurship Monitor United Kingdom 2003, January 2004, Rebecca Harding Finance survey of SMEs, February 2010, IFF Research (published by BIS) BIS, Financing a private sector recovery, Cm 7923, July 2010 5 • The doubling of the Annual Investment Allowance to £100,000 and the Entrepreneurs’ Relief lifetime limit to £2 million. The creation of a new statutory Small Business Credit Adjudicator to ensure that viable SMEs have access to the finance they need. The mobilisation of the EU's key financial institutions – the European Investment Bank (EIB) and the European Investment Fund (EIF) to stimulate the provision of venture capital and loans for SMEs. As a result: o the European Commission has agreed to coordinate an initiative with the EIF and EIB to raise additional capital for funding innovative and growing businesses. The Government is calling for €3 billion to be raised; and o the EIB has developed risk-sharing products that will help banks to accept greater levels of risk when lending to early-stage small businesses. The Government will now work with the EIB on a plan to ensure these products are quickly used by SME lenders in the UK. o The raising of £200 million of cornerstone investment for the Growth Capital Fund. • • • The launch of UK Finance for Growth (UKFG), which will be responsible for overseeing the Government's stock of over £4 billion of SME finance products. An increase in the threshold of the (Annual Investment Allowance) AIA to £100,000 for expenditure incurred from April 2010. In addition to this the introduction of a targeted anti-avoidance rule from 24 March 2010 to ensure this measure is focused on support for genuine business investment. The funding of a temporary increase in the level of small business rate relief, so that eligible small businesses occupying properties with rateable values up to £6,000 pay no business rates for one year from October. The enhancement by HMRC of its online services including : o The personalisation of businesslink.gov.uk for those starting up in business and enhance online services for all SMEs, providing better access to relevant tax guidance and flexible tax payment plans to help businesses manage their cash flow; o Helping start-ups and new employers by introducing a single interactive form to enable businesses to register for multiple taxes online and to authorise tax agents; and o The provision of an online facility that reduces the need for businesses, or their agents, to provide the same information to HMRC multiple times and allows them a single online view of current tax liabilities or repayments due. • • • 6 • The introduction of measures to increase Government spending going to SMEs including : o requiring departments to publish contracting and sub-contracting opportunities through a single portal that suppliers will be able to access free of charge from December 2010 (an SME has been awarded the sub-contract for the portal, which will be hosted on businesslink.gov.uk); o challenging departments to make more use of SMEs, including flagging contract opportunities as SME-friendly and increasing training to institutionalise SME-friendly procurement practices; o providing direct support to SMEs through the free-to-use training package, Winning the Contract; and o working with main contractors to open up supply chains to SMEs. An increase in the VAT registration threshold in line with inflation from £68,000 to £70,000. 16 • 4.2 Pre-Budget Report 2009 The following announcements were made by the former Chancellor in the Pre-Budget Report on 9 December 2009: Mr Speaker, for businesses to expand and grow, they need access to credit. Following intervention by the Government, total bank loans to businesses today are above where they were when the crisis hit in 2007. We have seen over £50bn in new business loans from RBS and Lloyds alone. But unsurprisingly, at the same time, other businesses have reacted to the uncertainty by repaying existing loans. Which is why net lending as a whole is down. I am very aware that some small and medium businesses still encounter difficulties getting loans. As recovery gets underway, we need to ensure that SMEs get the credit they need, and we are working with the banks to make sure that happens. We are also working to secure a contribution from the major banks towards a £500m Growth Capital Fund, which will invest specifically in small business. We will announce further details shortly. Mr Speaker, in January we launched the Enterprise Finance Guarantee which has already offered government guarantees on bank loans to over 6,000 businesses. Today I have decided to extend this scheme for a further 12 months which will guarantee a further £500m of loans to small businesses. 17 16 17 Chapter 4 'Supporting Business and Growth' Budget Report 2010 HM Treasury, Pre-Budget Report statement to the House of Commons, delivered by the Rt Hon Alistair Darling MP, Chancellor of the Exchequer, 9 December 2009 (check against delivery) 7 Elsewhere in the speech the following support was mentioned for small business start ups by “those who have served in combat zones and are retiring from the forces”: I can announce that we will allocate £5m from the expanded Strategic Investment Fund to help ex-service personnel who want to set up their own business. 4.3 Budget, April 2009 The Budget 2009 and announcements that preceded it in March set out the following measures: • • The temporary extension for an additional year of the trading loss carry back relief announced in PBR 2008 (see above). Expansion of HMRC’s Business Payment Support Service, increasing capital allowances for new investment to 40 per cent for one year. 18 This service involves a helpline and is for those who anticipate that payments to HMRC coming due will cause problems. HMRC review circumstances and discuss temporary options such as making payments over a longer period, or exercising forbearance on additional late payment surcharges. Allowing businesses to spread payment over three years of the 2009 inflation up-rating to business rates. A ‘top-up’ trade credit insurance scheme to help businesses maintain their finances, in which Government offer to match private sector trade credit insurance provision, for a temporary period, if insurers reduce cover to any UK business. For “a temporary period”, a vehicle scrappage scheme, co-funded with industry, that will enable consumers who scrap vehicles older than ten years to replace them with new vehicles at a discount of £2,000. A Strategic Investment Fund worth £750 million to support advanced industrial projects of strategic importance, of which a third of the funding will be earmarked specifically for low carbon projects; and Reforms to the taxation of foreign profits, including an exemption for foreign dividends, supported by a limited restriction to the interest deduction rules. • • • • • 4.4 Announcements in January 2009 • • Enterprise Finance Guarantee – A 75% government guarantee of bank lending to firms with under £25 million turnover (up to £1.3 billion). Working Capital Guarantee – A kind of ‘matched’ scheme where government supports banks’ risks on existing working capital lending; in return for them expanding lending to other firms using capital freed up by the government support provided (up to £10 billion). 18 HMRC, Business Payment Support Service 8 • Capital for Enterprise Fund – providing long term capital to businesses that have exhausted traditional forms of finance. Various banks are contributing to the fund (£75 million). On 27 January the Government announced the Automotive Assistance Program (AAP) containing measures to free up lending in the automotive sector and providing support for low carbon initiatives. 19 • 4.5 Pre Budget Report, November 2008 The following measures were announced in the 2008 PBR: • A “Small Business Finance Scheme” where Government, with support of Regional Development Agencies, would launch “a new temporary guarantee scheme to enable up to £1 billion of new Government supported lending by banks.” 20 A temporary guarantee scheme introduced by the Export Credits Guarantee Department, in conjunction with the banks, to support a £1 billion facility providing smaller exporters with better access to short-term working capital. Renewal of the Fixed Rate Export Finance Scheme for another year after the end of 2008. A capital fund of £50 million “providing equity or quasi-equity to SMEs who are overleveraged” funded from the existing Mezzanine Fund, Enterprise Capital Funds and a £10 million RDA contribution. Loan funds from the Regional Development Agencies such as Advantage West Midlands transition loan fund for viable SMEs facing financial difficulties. Funds were said at that time to total £25 million, to help businesses over the next six months. An online Business Link portal to provide information about support available for “creditworthy SMEs who are experiencing problems accessing credit to the scheme appropriate for them”. A further £1 billion of lending from European Investment Bank to be delivered via UK lenders. The PBR also announced the temporary extension of the carry-back of up to £50,000 of losses to be set against taxable profits from the last three years. The temporary measure will apply for one year from 24 November 2008 for companies, and for the 21 2008-09 tax year for unincorporated business. HMRC would launch a new Business Payment Support Service to offer enhanced support to businesses finding it difficult to make tax payments on time. The PBR confirmed that this includes corporation tax, VAT, PAYE, income tax and national insurance contributions. 22 Alongside the temporary reduction in the standard rate of VAT, the PBR also announced that plans to amend the sectoral rates of the VAT Flat Rate Scheme in line • • • • • • • • • 19 20 21 22 See: http://www.berr.gov.uk/whatwedo/sectors/automotive/aap/page50296.html and http://www.berr.gov.uk/whatwedo/sectors/automotive/supportmeasures/page49874.html HM Treasury, Pre-Budget Report, November 2008, box 4.1 HM Treasury, Pre-Budget Report, November 2008, box 4.3 HM Treasury, Pre-Budget Report, November 2008, box 4.2 9 with the standard rate reduction, which it estimates will allow “180,000 small businesses in the scheme to benefit from the rate reduction.” 23 4.6 Announcements in October 2008 On 21 October 2008 the Labour Government announced a package of measures to help small businesses in the wake of the credit crunch: The Government will: • Build on its commitment to pay firms within 10 days by working with NHS trusts in England, local authorities and other public sector employers in England to seek opportunities to extend the payment target. Regional Development Agencies in England, which spend around £750m per year with suppliers, have today signed up to this target. Offer free "Health Checks" in England for businesses through its Business Link support service to help identify problems early and to survive in the current financial climate. Prioritise training for SMEs in England under its Train to Gain initiative to ensure employees have the skills and business knowledge they need. Provide financial information, produced by the Institute of Credit Management, to help UK businesses to maintain cash flow, secure finance and limit problems caused by late or non-payment. 24 • • • 4.7 Budget, March 2008 The previous Government’s Enterprise Strategy was announced in Budget 2008 focussing on SMEs and included the following measures: 25 • • Improving access to finance for SME's A consultation on the introduction of regulatory budgets, which would cap the new annually recurring cost of regulation for business, including whether to pilot this approach on SME's or a particular sector; Increased focus in minimising the impact of regulation on SME's Independent review of regulatory guidance Further development of enterprise education on secondary schools and extension of it, where possible, into primary and further education (underpinned by a £210 million funding package, as agreed at the 2007 CSR); and Establishment of a National Enterprise Academy (NEA) • • • • 5 Business Support Simplification The system for delivering business support involves a large number of schemes which the previous Government intended to simplify. The Business Support Simplification Programme was aimed at reducing the number of schemes and improving access for small firms to government support: What is the Business Support Simplification Programme' 23 24 25 HM Treasury, Pre-Budget Report, November 2008, para 4.12 BERR, Helping small and medium sized businesses through the economic slow down, 21 October 2008 HM Treasury, Enterprise: unlocking the UK's talent, 12 March 2008 10 The Business Support Simplification Programme (BSSP) aims to make it easier for companies and entrepreneurs to understand and access government funded grants, subsidies and advice with which to start and grow their businesses. In March 2008 the Government published Simple Support, Better Business: business support in 2010, which set out the vision for business support in the future. Why is the Government doing this' Supporting businesses and encouraging economic growth is a priority at all levels of Government. Currently over 3,000 publicly funded business support schemes exist. Businesses have said they are confused by the number of schemes and discouraged from applying. The Government could also get greater value for money from a leaner system. So what is happening' The Budget 2006 announced that the 3,000 schemes would be reduced to 100 or less by 2010, while the Pre-Budget Report 2007 announced that Business Link would become the primary access route for individuals and businesses seeking support. Budget 2008 announced a timeline for the transfer of brokerage services to Business Link. These measures will deliver a better support service to business, as well as making substantial savings for Government through the removing complexity, cost and confusion from the system. Departments, Agencies, Local Authorities and Regional Development Agencies are all involved in the streamlining process. Read more about their work in What’s happening in your region' Businesses, their representatives and other organisations are also involved in shaping 26 how the simplified system will look and work. The “Solutions for Business” website explained how previous government support would be organised: 30 opening products became available to businesses under the Solutions for Business banner between October 2008 and March 2009. By 2010 all government products will either have migrated to the portfolio or closed. Products can help with accessing finance, innovation, research and development, training and skills, exporting and overseas trade and resource efficiency, including low carbon and will be provided by a range of respected public sector providers such as government departments and their agencies, Regional Development Agencies and Local Authorities. 27 26 27 BERR, Business Support Simplification Programme BIS, Solutions for Business, [retrieved 16 June 2009] 11 6 Other developments On 20 April 2009 the Labour Government published the policy statement Building Britain's Future - New Industry, New Jobs setting out a variety of policy positions. 28 The main points were summarised in the press release as follows: • making sure high growth, high innovation firms get the financing they need, including examining urgently whether, and in what form, further intervention could help increase the supply of long term growth capital to small and medium sized businesses more support for exporters by enhancing the role of UK Trade and Investment and the Export Credits Guarantee Department more support for turning bright ideas into products that win in the marketplace by building the Technology Strategy Board into a world leader and making sure we maximise economic opportunities from the work of our university researchers improving our ability to identify the skills needed for future success and making sure the education and training system delivers them smarter, more joined-up Government that understands the importance of creating wealth, is better at identifying economic opportunities from the big public challenges facing us (especially moving to a low carbon world) and uses its buying power to support innovation and skills a coherent strategy for making sure Britain has the modern infrastructure and networks, from energy to broadband, that will be the foundation of future prosperity concerted action to back businesses in markets and sectors, from pharmaceuticals through aerospace, nuclear to business services, lifesciences to plastic electronics where Britain has strength and Government can make a difference by clearing obstacles or correcting market failure 29 • • • • • • There were ongoing indications of the previous Government’s desire to limit or defer new regulatory burdens on business in employment such as: equal pay audits, maternity pay reforms, flexible working extension, uprating of redundancy pay and the NMW. In general this did not result in a complete moratorium although some measures were more cautious than they might have been. For example equal pay audits were deferred to 2013; maternity and paternity pay increases were put on hold; redundancy pay was uprated but not as much as unions had hoped; the NMW was uprated modestly compared to previous years. The extension of flexible working rights went ahead as announced. 7 Conservative policy prior to May 2010 A Conservative Government would help businesses struggling in this recession by: Establishing a temporary National Loans Guarantee Scheme to get credit flowing again and help protect jobs. Prior to the election Conservative Party policy was summarised as follows: 28 29 BERR, Building Britain's Future - New Industry, New Jobs, 20 April 2009 BERR pres release, A strategic plan to invest in Britain's economic and industrial future was launched by the Government today, 20 April 2009 12 Allowing struggling firms to defer their VAT bills for up to six months. Cutting small firms' payroll taxes. Helping companies with the costs of hiring new staff by giving tax breaks for new jobs. And we would ensure Britain is one of the most competitive economies in which to do business in the future by: Cutting the main rate of corporation tax. Cancelling Labour's planned increase in the small companies tax rate, and cutting the rate instead. Reducing the burden of regulation to give businesses more freedom and greater flexibility. Simplifying employment law to make it easier to hire people Improving skills training and apprenticeships Reforming the Regional Development Agencies to create a vibrant, business-focused force Strengthening UK Trade and Investment to give British business a powerful voice abroad Increasing government procurement from small firms [...] We will freeze council tax for two years by reducing wasteful spending on advertising and consultancy in central government. We will introduce a £50bn National Loan Guarantee Scheme to underwrite bank lending to businesses and get credit flowing again. We will help the innocent victims of the recession and encourage a new culture of saving in the long term by abolishing income tax on savings for everyone on the basic rate of tax and raising the tax allowance for pensioners by £2,000 to £11,490 We will provide tax cuts for new jobs with a £2.6bn package of tax breaks to get people into work, funded by money that would otherwise go on unemployment benefit. We will cut the main rate of corporation tax to 25p and the small companies' rate to 20p, paid for by scrapping complex reliefs and allowances. We will give small and medium-sized businesses a six-month VAT holiday, funded by a 7.5% interest rate on delayed payments. We will cut National Insurance by 1% for six months for firms with fewer than five employees, paid for from the above changes to the company tax regime. We will abolish Stamp Duty for nine out of ten first-time buyers and raise the Inheritance Tax threshold to £1 million. Both of these changes will be funded by a flatrate charge on non-domiciles. 30 30 Conservative Business Relations, Policy 13 The main focus of Liberal Democrat policy for small business has been on taxation and the burden of regulation. 31 In response to the Pre-Budget Report 2008 Vincent Cable welcomed the action on small business lending. However, he was critical of the approach taken by the Government to fiscal stimulus. 32 In July 2010, the Business Secretary, Dr. Cable, published a policy document, A Strategy for Sustainable Growth which set out planned measures on access to finance for small business: Access to finance In recent years, access to finance has been one of the greatest sources of uncertainty for those planning investment. It was a collapse in financial conditions that preceded the recession from which we are now recovering. Fixing this is an essential part of our growth agenda. Access to appropriate finance is important to facilitate business growth by helping businesses to fund investment and manage uneven cash flows. It is especially important now, as the economy grows and business confidence returns. The challenge is to ensure that the supply of finance in general, and the banking sector in particular, support rather than constrain the recovery. There is a key role for government to play in facilitating credit availability for viable smaller businesses as well as developing nonbank lending channels to enable more businesses to obtain financing from a greater variety of sources. In the short term we have taken a number of steps to encourage and facilitate bank lending, including the extension of the Enterprise Finance Guarantee to support up to £700 million of additional lending to SMEs until March 2011 and the creation of the Growth Capital Fund to address the finance gap2 for established businesses seeking between £2-£10 million. The Government has committed to publishing a Green Paper on Business Finance before the Summer Recess which will examine a wide variety of options to ensure that a credit crunch does not derail the economy again. 33 A report published in May 2008 commissioned by and written for the Conservatives examined small business support. It set out recommendations for improvement and reform focusing on the Government's simplification programme which aims to cut the number of support schemes from 3,000 to 100 by 2010. The British Chambers of Commerce welcomed the report, so long as its proposals “do not disrupt the schemes businesses are currently accessing”. 34 With regard to access to finance for small firms the report produced the following recommendations: Access to Finance We propose an extension of the Enterprise Investment Scheme (EIS) to include loans as well as pure equity finance. Under current regulations the benefits of the EIS do not extend to Non Executive Directors who join the Boards of EIS qualifying companies to share with them their experience. We should help businesses that want to align their advisors with the risks and rewards experienced by management. It is further proposed that the Conservative Party should consult with other providers of capital such as hedge funds, VCTs and individuals to determine structures that could expand 31 32 33 34 Libdems.org, Big on Small Business, Liberal Democrats: Supporting small businesses and cutting red tape, August 2007 HC Deb 24 November 2008 c508 BIS, A Strategy for Sustainable Growth, Section 3: Investment, July 2010 BCC, Richard report offers encouraging proposals for business support but must not lead to unnecessary disruption, 13 May 2008 14 the pool and flexibility of small business loan provision and encourage these suppliers of capital to enter the Small Firm Loan Guarantee (SFLG) process. Banks. Further, the Task Force is disappointed with the low level of equity/quasi equity/subordinated debt engagement from the major banks. We propose that the Conservative Party should establish a business finance group to work with the banks in recommending how greater involvement could be achieved. Alternative Investment Market. The success of AIM as an effective small cap market has been a major contributor to the UK’s economic success and is attracting IPOs from around the world. The withdrawal of tax support for VCTs has made it harder for UK businesses to access AIM and the LSE as a source of major growth capital, and hit liquidity. The Task Force proposes that the Conservative Party explore ways of engaging the power of the London market to aid UK small businesses. 35 The Conservative Party also commissioned a report on how to reduce the regulatory burden on businesses during the financial crisis. The report, published in May 2009 was written by David Arculus, a former government advisor on legislation. The summary set out the main points as follows: This review looks at how regulation can be improved across the British economy. I and my team have deliberately concentrated on what most people would describe as the real economy – the non banking sector. This real economy comprises manufacturing, services, small and large businesses, the public sector and charities. It does require the lubrication which the financial system supplies, but it does seem likely that when this lubrication is restored that the real economy will have to take up the mantle of economic growth from a smaller but hopefully fitter banking sector. My aim is to enable the Conservative Party to develop an agenda which will reduce the regulatory burden on both the private and the public sector whilst maintaining the protections which society judges to be necessary. Good regulation provides a necessary framework for all economic activity. Bad regulation imposes unnecessary costs on us all, costs which we cannot afford in difficult economic times. The trick is to get the balance right. Some of the biggest failures of the last decade have been failures of regulation. Bank lending may have been under regulated, but many people in the real economy, be they doctors or police officers or small businesses would feel over regulated. With regulation the devil is always in the detail. To get it right, we have to create a regulatory framework from which good decisions will flow. These decisions should be taken by those close to the detailed issues, rather than by distant figures in Whitehall or Brussels. There are examples of good practice amongst the regulatory community, equally there is much that can be done better. The structure within which they operate needs attention as does the law-making process itself, both at national and European level. My concern is to build on the good and to strengthen the challenge mechanisms which can help to sort the good from the bad. I advocate the formation of an Independent Panel for Regulation and Risk, a strengthened system of regulatory budgeting, stronger Parliamentary Scrutiny, and more vigorous engagement with Brussels. I want less regulatory bodies, less centralised control of the public sector and far more use of alternatives to regulation. This report seeks to both enable enterprise and encourage responsibility. I believe both of these will be necessary attributes as we seek to rebuild the prosperity which has 35 Doug Richard, Small Business and Government: The Richard Report, Submission to Shadow Cabinet, 13 May 2008 15 made Britain one of the best countries in the world in which to live. A necessary condition is to have a Prime Minister who cares passionately about these issues. 36 36 The Arculus Review: Enabling Enterprise Encouraging Responsibility, May 2009 16