Budget must solve banking and unemployment crises

Forcing banks to behave and solving the problem of rising unemployment should be at the top of the Government's to-do list in the most crucial budget in decades, according to the Federation of Small Businesses (FSB).

The FSB is calling for automatic rate relief for small firms, an increase in the thresholds before Income Tax and National Insurance contributions are payable and an independent Corporate Mediator to work with banks and their business customers to be put in place in Chancellor Alistair Darling's Budget on April 22.

In a recent survey of FSB members, a third of small firms said their bank was less helpful now than before the credit crunch began – precisely at a time when help is most needed. The FSB sees resolving the stand-off between banks and their business customers through this mediator as a clear priority.

Businesses

In calling for the Government to prioritise better support for businesses in accessing finance and regulating their cash flow as a matter of urgency, the FSB proposes:

• A solution to the banking crisis: the Corporate Mediator would act as an autonomous intermediary between the banks and business customers, negotiating resolution where disputes arise; solving financial problems for business owners and ensuring clear communication of support packages on offer to the business community. The FSB has also proposed the introduction of a Post Bank set up in the Post Office network as an alternative to regular banks.
  
• Building confidence: a healthy rise in Income Tax and National Insurance thresholds to £10,000 in 2009 would put money back into the pocket of the employee and cut the cost of employing staff for business. This would lift those on the lowest incomes out of paying tax entirely, including many self employed small business owners, and reduce the number of people claiming tax credits.
  
• Lowering small business overheads: business rates are the third highest expenditure for small firms after rent and wages, yet every year more than £400 million goes unclaimed by businesses eligible for up to £1,200 off their rates bills. The Government must make this rate relief automatic – following the lead of Wales and Northern Ireland – providing valuable extra finance at no extra cost to the Government or tax payer.

John Wright, Federation of Small Businesses National Chairman, said: "The Chancellor is about to announce possibly the most crucial budget in decades and he has got to get it right. The Government must take decisive action to inject life into the economy and resolve the big problems faced by small businesses: the double whammy of irregular cash flow and a lack of finance from the banks.

"The FSB has come up with strategic solutions to these problems in calling for the Chancellor's next Budget to include a Corporate Mediator to rebuild the relationship between banks and business; alternative banking solutions such as the Post Bank; and making rate relief automatic – at no extra cost to the Treasury at all.