The Autumn Statement initiatives should be given a cautious welcome, writes Steven Nicholas, chief executive at Tiuta plc
Looking at the range of measures aimed at UK business as outlined in the Chancellor’s Autumn Statement, there’s no doubting that this is a significant throw of the dice to try and achieve some growth. We have been saying for some time that the Government’s own Project Merlin has been a damp squib in its ability to deliver more lending from the banks and the Autumn Statement itself appears to suggest agreement.
The range of evidence which shows that there is still a lack of appetite amongst the big, high-street banks to lend has finally appeared to get through to the Coalition Government and it finds itself having to announce a raft of measures. We all hope that this is still not too little, too late and we also hope these measures bring with them tangible evidence of businesses being able to access funds.
It cannot be said that the Government has not focused on small to medium-sized enterprises. George Osborne made the following commitments:
* A ‘credit easing programme’ to underwrite up to £40 billion in low-interest loans to small and medium-sized firms.
* £20 billion national loan guarantee scheme for small businesses.
* A £1 billion business finance partnership to raise money for medium-sized firms.
* A Regional Growth regeneration fund to get £1 billion in extra funding.
* A £250 million support package for energy-intensive firms.
* £500 million for science.
* A business rate holiday relief for small firms extended to April 2013.
This amounts to a considerable amount of money and, quite frankly, the first question many people will be asking is: ‘Where the hell is it coming from?’ However the fact is that this type of money, if it can be lent and if it can get through to those firms who need it most, will provide a significant boost to business.
And yet there is a nagging doubt in my mind. Take for instance, the National Loan Guarantee Scheme which will be targeting firms with a turnover of less than £50 million. The cash injection over the first two years is going to be £20 billion however this money is going to be ‘channeled’ through the banks – how is this likely to work? Osborne says it will cut small businesses’ lending costs by 1% – I wait to be convinced.
Indeed, will specialist lenders see any of this money given that we are in a strong position to make a significant amount of loans? Were major banks willing to offer funding lines to operations like ourselves, we would be able to bring the cost of borrowing down by a healthy margin. At present this is not happening. Instead, when many talk about the high cost of bridging funds at present, this is not anything to do with ‘pricing for risk’ but it is rather due to the fact that the major banks are refusing to lend. All this means, that specialist bridging lenders like ourselves have to go out and source more expensive funds from private lenders.
So, while I give a welcome to the initiatives announced by the Government in the Autumn Statement, that welcome is of the cautious variety. Translating words into deeds has proved to be incredibly difficult in this economic environment and having had many conversations with the big banks over the course of the year I remain to be convinced on whether, even with these measures, they actually want to lend more. Given the battering their balance sheets took post-Credit Crunch there is still an underlying want (and need) to keep them stable.
In six to 12 months time I hope we can return to this topic and I will have been proved completely wrong. My fear is that the status quo will remain and we’ll still be looking at an environment with rising unemployment and more businesses going to the wall because the funding they were promised failed to materialise.