Treasury must take action to back up words

The UK's leading big business organisation, the CBI, has come out with a call for the Government to do more to help small businesses.

The CBI claims that the Government has made significant progress delivering better access to finance for small businesses but must develop a strategy for the next decade to ensure momentum is not lost.

The CBI praises a series of 'effectively-targeted and managed schemes', initiated by the Small Business Service, so that entrepreneurs now find it easier to raise money to start and grow businesses where previously it was unavailable.

However, the SBS itself has been subjected to much criticism lately, including a damning report from the National Audit Office.

But while praising the SBS, the CBI is concerned that gaps are starting to emerge in finance provision which must be plugged to build on the achievements of the past few years.

Many venture capital firms are seeking less risky investments in the current economic climate, and are also beginning to call in their stakes rather than seek further opportunities. Raising capital for innovation, which does not provide a high rate of return, is increasingly a problem too. In a report published by the CBI, the group says the Government must examine how business demand for finance over the coming years can be met and makes a series of recommendations to achieve this.

Tax incentives

The CBI is also calling on the Treasury to straighten out a series of anomalies in tax incentives designed to encourage more finance for small companies. Giving companies tax relief on capital expenditure is a proven incentive for investment. However, firms are eligible for these allowances only when they become profitable. This does not support new and growing businesses who are investing for growth ahead of achieving profitability.

The CBI says that the Treasury should demonstrate its commitment to enterprise by making capital allowances available to these firms too. Tackling this anomaly and other measures, e.g. making the incidental costs of raising money through issuing equity subject to corporation tax relief, would stimulate more investment, particularly for research and development, and business growth.

John Cridland, CBI Deputy Director-General, said: "The Small Business Service has struggled in many policy areas but has at least succeeded in delivering better access to finance for new and growing companies. It has listened to business and provided opportunities where the private sector has not been able to. It has not been afraid to adopt successful private sector methodology and has been rewarded.

"But the Government cannot afford to stand back and admire its work. It must draw up a long-term strategy to build on this strong foundation so more entrepreneurs can turn their business ideas into reality.

"And the Treasury must prove its commitment to enterprise through actions not just words."

Recommendations

The CBI report, 'Improving Access To Finance: Enabling the enterprise revolution' is the sixth in a series which examines the success or failure of the Small Business Service in its aim of making the United Kingdom the best place in the world to start and grow a business.

The report makes a series of recommendations including:

• Helping banks to find ways to provide more unsecured lending to small and growing firms.
  
• Ensuring RDAs make the grant and finance network easy to navigate and properly funded.
  
• Further addressing the £250,000 to £3m equity gap facing smaller companies seeking growth capital.
  
• Correcting anomalies in the Treasury's Enterprise Investment Scheme which encourages more 'business angels' to invest in new and growing companies.
  
• Making the incidental costs of raising equity tax deductible, and providing cash payments of capital allowances to loss-making businesses.

Previous CBI reports in this series covered building an enterprise culture, encouraging a more dynamic start-up market, examining causes of disparities in start-up rates by region, race and gender. The next two will examine the development of better regulation, and how to improve business growth.