I’ll try to resist that part of my history that covered statistics during my economics degree at the London School of Economics although it is necessary to identify some facts, even perhaps some damn lies. Suffolk is my county, and although most of NALEP seems to be based in Norfolk any bias must be resisted.
In Suffolk over 450,000 people are in employment, men and women are equally divided. They work for just over 26,000 companies, of which 74% have less than 4 employees, and 94% less than 19 employees. These are simple figures that need to be borne in mind when looking at the support provided for local companies.
Even then I’m not convinced that these figures give a complete picture of local employers, as national and multinational companies may be mixed up in these statistics.
The broad picture is that Suffolk companies are small, and so it is these enterprises that need support if the county, as a whole, is to grow economically. In 2010 just over 2,000 new enterprises were started. Unfortunately we lost more, nearly 3,000 stopped trading.
Maybe the recession has reduced enthusiasm, but with the addition of a University College (if not yet a full university), the growth of Felixstowe Port and the continuing fragmentation of BT perhaps a better result could have been expected. Add to these the plethora of grant-aid schemes that emerge every week, each with their own complex criteria, CEO, administrative team and web site.
The banks are accused of failing to finance growth but there may be other factors at work. One is the type of support available to emerging companies, a difficult subject not to be covered here.
I’d like to offer an alternative scheme that will provide small companies (our lifeblood) opportunities for expansion.
Put simply it is to channel the funds the government introduces to the economy, called quantitative easing, into small companies, and to do so without using an inefficient intermediary like bonds and the banks.
The Treasury has already issued well over £350 billion of government bonds. As they rise in value fat cats have got even richer as they sell off the bonds and, supposedly, use the profits to finance industry. It’s not working. Yet the government is willing to finance student loans, a form of lending without long-term prospects, if any, of recovering the money spent. This is lending that demands upon a healthy economy, to give jobs and incomes to our young people. It is a lending scheme that could be applied to small businesses.
Why don’t we bypass the thieves and vagabonds, the gamblers and shysters, that populate our financial institutions and lend, or even give, the money direct to small businesses?
Those that work shall eat. Unfortunately those that lend a quid to those that work expect interest payments that greatly exceed the amount of the original loan, and then that the loan itself must be repaid within a set term. That last requirement has seen the collapse of many companies as the banks and lenders call in loans without giving any leeway. The Student Loan Scheme offers more flexibility.
Can we begin to properly explore this option? It is being used in other parts of the world. This short paper can do no more than pose a simple question. It arose because I spoke to a good friend recently. He had just retired, with a few pennies jangling in his pocket. Being a good man he’d lent money to an emerging company. As a result the government had given him a tax break, so as a 50% tax-rate payer he’d immediately been given back half the money he’d lent. He hinted that the LEP was preparing to match-fund his contribution, once it had funds.
Pull that system apart. He has, let’s say £10,000. It’s lent to a company. He receives £5,000 from the government – it’s money he had previously paid in tax. The LEP wants to match that £10,000 – and where does the LEP get its money? From the government (that’s the taxpayer) or a Lottery Fund (still the people) or investors looking for a tax break. In effect the scheme allows £15,000 of publicly donated cash to be lent to a company. The company has to repay the £20,000 loan, and interest payments. The investor gets £10,000 plus interest from the company, plus £5,000 from the taxman.
It’s a system that fails to really help the emerging company, although it does place an obligation to repay with the attendant pressures that may bring, especially as the loan is over a short-term, unlikely to be more than five years.
It helps the rich get richer, and ensures that the remaining tax-payers have to contribute more, or to have reduced services provided.