Getting back to growth

ice-green-shoot-growth

Small business confidence has slumped but recovery relies on creating an environment 
more conducive to growth, writes John Walker

With the economy in a coma, it is more important than ever that the right environment for business growth be put in to help boost the recovery. Unfortunately, small business confidence has dropped and the government has yet to make any real changes to help small firms grow.

Small businesses have not had it easy 
over the past few years but they have 
shown resilience in the face of any challenges and have got through some incredibly difficult periods.

The Bank of England’s downgraded 
growth forecast for 2011 means that we 
need a clear plan for growth to allow 
budding entrepreneurs to set up in 
business and for firms to have the 
confidence to grow and invest. Helping 
start-ups and every small business will 
really help strengthen the recovery.

Lack of confidence

The Federation of Small Businesses’ (FSB) Voice of Small Business Index – which measures the confidence of small firms across the UK – showed that in Q2 of this year, small business confidence dropped dramatically. Strikingly, confidence fell in 13 out of 18 of the sectors monitored, with five sectors falling from a positive to a negative reading.

The index has been a good predictor for the path of economic growth since it began in 2010, so the FSB is extremely concerned that the government’s growth plan is failing and the promises to help small businesses grow have yet to materialise.

With the economy in such a fragile state, characterised by high unemployment and muted demand, the government must match its rhetoric to encourage businesses to take on staff and grow, and help boost consumer demand so that the recovery can really get back on track.

What is required is a targeted and time-specific VAT cut in the construction and tourism sectors to 5% to really help small businesses grow their business and the economy. It is tangible measures such as this that will provide a much-needed boost to the economy.

Unemployment is at a high with 2.49m people out of work, and there has been a significant rise in the number of people claiming Jobseekers Allowance, so the government needs to put policies in place to provide a real boost in job creation.

Making the JobCentre Plus Work Trials scheme available from the first day someone signs on for Jobseekers Allowance could help create 46,000 jobs. Research by the FSB shows that nearly a quarter of small businesses would take on a member of staff if Work Trials were extended. It is vital that the government makes small changes such as this to help tackle unemployment. Without these, small businesses will not be able to deliver on the job the government 
has given them to grow the economy.

Access to finance is another area where the government needs to step up its game. The banks have fallen short of their lending targets to small firms for the first six months of the Project Merlin agreement and issues still remain over whether lending targets address the fundamental problems that exist in the banking sector. A recent FSB member survey showed that a third of firms that had been refused credit believed they had missed their growth opportunities.

Lending increase

Figures do show that lending to small businesses has increased by 22% in the first quarter, but the fact remains that only a small number of banks still control the lion’s share of the market. It is this that needs to change and the Independent Commission on Banking needs to make increasing competition in the sector one of its key recommendations to government.

The FSB has supported the Monetary Policy Committee’s decision to hold interest rates at 0.5% this year. Small firms believe that their prospects will not get any better in Q3, so an increase in the rate could mean that businesses further delay investment. The FSB believes that interest rates must be kept on hold until at least early 2012 when the economy should be in a stronger position and businesses start to have more confidence to invest and grow.

For any business to grow, including in the insurance sector, we need the government to step up and create an environment where small businesses can flourish and budding entrepreneurs can become self-employed with ease. It is, after all, these people that are going to drive a fruitful economy. But they cannot do that if they are left without any help and assistance from those that have the ability to do just that.

John Walker is national chairman of the Federation of Small Businesses

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