smallbusiness.co.uk: Helping your business think big

John Spencer, CEO of serviced office provider MWB Business Exchange, gives his response to the government’s latest bail-out package

The proposed £20 billion loan guarantee scheme announced by the government is both welcome and worrying. Is this scheme really going to work, or will we still be sitting here in three months’ time warning that small businesses remain unable to get access to credit?

We have to hope that this isn’t simply a PR move on the part of the government as, in the last few weeks, there seems to have been a focus on creating headlines rather than making concrete steps to solve the real issue behind the crisis: the shortage of credit.

The government should stop trying to drive the media agenda and instead focus on three key issues that would help small businesses: credit flows, red tape and cash flow. Here are four things they could do to help:

Get credit moving: The new loan guarantee scheme needs to work and the theory behind it is encouraging. Up until now the government has hoped that ‘putting pressure’ on banks to lend to small businesses would work. However, these are the very same banks that the government has told to shore up their capital positions –so it’s no wonder banks are not keen on any risky lending. Banks need guarantees and this should be the role of government, not creating jobs and launching initiative after initiative. Get the credit markets moving again and the British small business community will do the rest.

Cut down on red tape: However unpalatable it may sound, it would do us all a lot of good if we rolled back some of the red tape which makes hiring and firing so difficult in this country. While losing jobs should always be a last resort, it is surely better that a company survives with fewer people than goes bust under the weight of its wage bill. Employing staff quickly has also become increasingly difficult. Some businesses take measured decisions not to expand simply because of the costs of complying with employment legislation. This is damaging for jobs and growth and should be changed in advance of any upswing in fortunes so that we can get the unemployed back to work as quickly as possible.

Help small businesses with their cash flows: The government did the right thing when it pledged to speed up payments to small businesses that have contracts with the government. The private industry should follow suit. Moves should also be made to allow small businesses to defer payment of VAT. Party politics should be cast aside and the Conservatives’ proposals for a VAT holiday should be implemented.

Stop trying to make headlines: The recent talk of the government paying companies to keep staff on or take students on low-paid internships is all peripheral at the moment. If companies cannot get credit, or if they go bust simply because of short-term cash flow problems, then the unemployment figures will rise faster than the government can create these ‘fake’ jobs.

There is no time to waste

The government has obviously been working hard on solutions to the banking crisis and resulting recession but it sometimes looks like it is chasing poll ratings rather than actually rolling up its sleeves and doing whatever it takes to get money moving again.

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