The Current Government Needs to Start Backing SMEs

04/10/2013 22:10 BST | Updated 04/10/2013 22:10 BST

The Government has told us on numerous occasions that small businesses are integral to the recovery of the British economy. I was, therefore, surprised by the stunning lack of support offered to small and medium businesses at this year's Conservative Party Conference.

In his closing speech, David Cameron lacked substance when he addressed small business, and failed to tackle the issue of banks not lending to SMEs under the current scheme. This was a lost opportunity for the Prime Minister to prove that his party is the 'only party of business and enterprise,' and a blow to any small business currently struggling to survive in the UK.

Cameron's commitment in introducing Start-Up Loans and tax breaks offering up to £2,000 off National Insurance bills is a stride in the right direction but stops far short of resolving the numerous challenges SMEs are facing.

According to data from Peninsula Business Services released earlier this year, 84% of SME owners surveyed cited HR legislation and red tape as their biggest frustration. This means that companies as small as two people have to go through an extensive and time-consuming formal redundancy process, complete with multiple consultations and formal written reasons for redundancy, simply because the owner no longer needs - or most likely can no longer afford - a second staff member. Is this process

really helping small businesses owners be more efficient in managing their staff?

It's clear that small businesses are disproportionately impacted by legislation designed for much larger businesses, and the government could help alleviate this burden.

A simple exemption for companies below ten employees would solve the problem immediately. Further exemptions from much of the red tape and onerous HR requirements for companies below a certain revenue size would invigorate these businesses and free up their time to be used in far more productive ways.

SMEs have also been consistent in asking for a Small Business Exports Department, such as that in the US, to provide support and advice for companies wishing to trade abroad. While the UKTI and similar organisations offer significant assistance there is no 'one-stop-shop' SMEs can go to for exporting advice; again, something David Cameron and the current Government could help create.

The area of most critical concern, however, is funding. Funding for Lending was intended to solve the problem of banks not wishing to lend to SMEs. If the scheme had not been paired with the Help to Buy mortgage lending scheme, I believe it could have had a significant financial impact for many small businesses needing money.

In actuality, when a bank lends in the form of a mortgage, it has security against the loan in the form of property. When a bank lends to a small or medium-sized business it is often harder to identify a tangible asset as security. The outcome has been that bank lending to SMEs has fallen consistently since the start of the scheme, while mortgage lending has risen and mortgage interest rates have fallen.

Introducing a minimum ratio of 'loans for housing' versus 'loans to SMEs' would go a long way to help a more even distribution of money. For banks to lend more to the housing sector, they would have to lend more to the SME sector. Much as with Reserve Asset Ratios and similar concepts, bank lending behaviours and outcomes can be determined effectively by ratio-driven formulae.

The knock-on effect of this is two-fold: Given SMEs are responsible for more than six out of every 10 jobs in the private sector (and this is according to the Government's own Department of Business and Skills) the more they grow, the more jobs they create. Financing SMEs also leads to a growth in productivity because SMEs actually produce and create goods and services.

When productivity increases, economic problems are alleviated, rather than band-aid solutions such as increased property lending which merely store up trouble for another day and/or is left as a legacy for a future Government to tackle.

According to David Cameron's 'land of opportunity' it is easier than ever before in our history to start a business, and it is fair to say he has made ripples in this direction.

But for this land of which he speaks to be real, the Government must radically improve the help it offers the SME sector. Only then can the Prime Minister truly claim that his is the 'government of business.'