THE BLOG

Small Business Deserves a Seat at the Top Table

31/01/2014 12:02 GMT | Updated 02/04/2014 10:59 BST

My colleague Chuka Umunna MP's plan for the next Labour government to introduce a US-style Small Business Administration is very welcome. SMEs comprise 99% of all UK businesses, providing 60% of all jobs and 50% of UK corporate turnover, yet the institutional structures which currently serve them often significantly underperform those of our international competitors.

Complexity is part of the problem. A 2013 Federation of Small Businesses report on UK enterprise policy found that 891 different sources of support exist for SMEs. This bewildering array of options is putting businesses off even investigating what help is available to them. In contrast, the US Small Business Administration (SBA) focuses on a small number of core lending and advisory programmes.

Whilst the UK Government department responsible for enterprise (the Department of Business, Innovation and Skills) and the equivalent bodies in the devolved administration have undergone a series of mergers, reorganisations and name changes over the last forty years, the US Small Business Administration remains essentially unchanged since its creation in the early 1950s. Similarly, Germany's state-owned development bank, Kreditanstalt für Wiederaufbau (KfW), has been a permanent fixture of its economy since the end of the Second World War. There are countless other examples from the leading developed nations; indeed, the UK is the only G8 country without a state-backed lender. If we are truly striving for solid, sustainable growth in the long term to replace the short-termism that has long characterised the UK economy, we need to emulate institutions like these.

The other agencies responsible for enterprise - UK Trade and Investment (UKTI) and UK Export Finance (UKEF) - also fall short. UKTI, though highly regarded by the businesses it works with, is still not well enough known by small businesses. Many report having no idea of what the agency can specifically help them with. Last year, a temporary House of Lords select committee on Small and Medium Sized Enterprises reported being 'taken aback by the very small number of SMEs helped by UKEF'. Clearly, more needs to be done.

The US and Germany also attach significant political capital to enterprise. In 2012, and despite Republican opposition, President Obama elevated the head of the US SBA into his Cabinet, a position established by Bill Clinton. In Germany, the KfW's board is chaired by the Finance Minister himself. Business Secretary Vince Cable's British Business Bank held the promise of living up to the best of our foreign competition, but the bank's current offering has not progressed far beyond a bundling-up of existing government finance and advice schemes. With no plans for direct lending to businesses, even after its application for EU state aid clearance is approved, the Business Bank instead seeks to 'create more effective and efficient finance markets' for businesses in the UK. This essentially means that it will not involve itself much with businesses themselves, but will instead simply dole out cash into the wholesale market and hope that as much gets through to SMEs as possible. This is the wrong approach and similar attempts have had disappointing results. Instead, the bank should match the direct lending capabilities of the state-backed institutions of other leading nations.

The next Labour government would create such an institution; a proper UK national investment bank to plug the funding gaps that our High Street banks are currently failing to address.

Working in tandem with a future UK Small Business Administration, the British Investment Bank would be founded on a commercial footing, but with a remit to channel funds to the thousands of viable SMEs currently struggling to secure finance from the High Street. The UK SBA would work to tear down barriers to SME access to government contracts and would absorb UKTI and UKEF's role as export agencies, bringing the essential services needed by business into one simplified institution.

One example makes the need for streamlining enterprise policy clear: US government support for business is around $100 per capita lower than that of the UK, where the sheer complexity of administering the range of schemes on offer means far less funding actually gets out the door and into the hands of businesses. A Labour Government would re-engineer our enterprise policy around the twin pillars of a UK Investment Bank and a UK Small Business Administration. Only then will the small businesses that form the backbone of our economy have the proper support needed to compete with the best in the world.