On Tuesday I wrote about tax and yesterday Felicity set out our views on skills policy. These are two of four priority areas for reform we identified in our submission to the government in advance of its Autumn Statement.
The third priority area for reform, as nominated by our members, is access to finance. We survey our members every quarter on credit conditions and since the financial crisis both the availability and cost of credit have consistently been issues, particularly for smaller companies.
There's been much ink spilt on this particular subject given the banks had their paw prints all over the financial crisis – and now it seems, to some, that the same banks are holding businesses back from getting the finance they need to grow.
What we've consistently tried to do in commenting on access to finance is avoid being sucked into the debate about who's to blame or whether the problem is supply or demand (we see it as both).
To be frank this debate continues to generate a lot of heat but not much light. Instead our interactions with the government and the banks themselves have focused on solutions not recrimination.
For us it comes down promoting greater depth and breadth of competition in the financial sector – to generate a better service for the economy and businesses looking to grow.
The banks receive a lot of the coverage and we have our views on that segment of the sector. We endorse Sir John Vickers' recent report on reforming the banking sector and in particular want to see the government come out and strongly support the recommendations for enhanced competition. If you haven't read Sir John's report, this specifically means:
Enhancing the Lloyds divestiture to include a higher proportion of current accounts, higher quality of branches, with a lower reliance on external funding – therefore placing a new challenger bank in a good position to take the incumbents;
Making it easier to switch accounts between banks by 2013.
But progress on access to finance means going beyond just the banks. For many businesses prior to the financial crisis cheap bank debt became the answer to all their external finance needs.This reliance was out of synch with the risk some businesses posed and had a detrimental impact on other segments of the financial sector as they were crowded out by the banks.
We now need to see a strong re-emergence of funding sources outside of banks. These need to be on both the debt and equity side.
We have been encouraged by action taken by the banks in setting up the Business Growth Fund, a new £2.5 billion equity fund for growing businesses looking for capital of £2-10 million.
And it was positive to see the government extend the generosity of the Enterprise Investment Scheme (EIS), a tax incentive for individuals looking to make equity investments.
But we'd like to see this action extended to encouraging further provision of non-bank debt – especially important given SMEs well-known aversion to equity finance.
That's why our submission includes two specific calls:
Encouraging the banks to extend their Business Growth Fund to cover debt investments;
Extending the EIS to cover private debt placements, as the government is proposing to do with its new scheme for encouraging Business Angel investments.