Theresa May recently released her long-awaited industrial strategy, in the form of a ‘green paper’, in an effort to strengthen business confidence and boost the post-Brexit UK economy. In the prime minister’s own words, the strategy seeks to ‘deliver a stronger economy and a fairer society – where wealth and opportunity are spread across every community in our United Kingdom’.
The strategy received a luke warm reception from much of the UK media and industry, the main accusation being that it lacked real substance. However, read a little deeper into the industrial strategy and there is reason for optimism. Specifically, I’m referring to the section titled ‘Supporting businesses to start and grow’ on page 18. Within this small segment the government acknowledges that we all need to do more to guarantee that businesses around the country have the access to the finance that they need to grow, stressing that ‘we’ need to ensure barriers are ‘addressed’ and conditions are right.
It is refreshing that the plight of SMEs, which are the backbone of our economy, has been put front and centre on May’s agenda. A report released just last week found that medium-sized businesses generated more profit and created more jobs (780,000 roles) than large companies over the past 12 months, which illustrates just how integral SMEs are to our combined economic success. If the UK is going to make a success of Brexit, then we need these businesses on board.
Businesses abandoning investments
As our own research with the CEBR last year found, a third of all British businesses have abandoned investments as a result of Brexit (23 per cent of all small businesses and 44 per cent of medium). While such precautions are understandable given the uncertain economic climate it is important that we do not become overly cautious and talk ourselves into a slowdown by reducing spending and stalling investments.
Now that the government has, to some extent, clarified our Brexit plan we can afford to act a little bolder. The signs are that we will be leaving both the single market and the customs union. In this latest green paper, the government has stated its intention to help facilitate equity finance for businesses around the whole of the UK and remove barriers to growth. With the UK manufacturing industry said to be ‘firing on all cylinders’, now seems like an opportune moment to move forward and project a message of confidence to the world.
We should also take a moment to remind ourselves that leaving the single market would not mean relinquishing access to it. One of the most significant issues for negotiating bilateral trade agreements is the carve outs. Britain has operated in to the EU for decades; there are no carve outs to negotiate. It’s possible for businesses to enjoy the best of both worlds, sustaining strong ties with our counterparts in the single market, while also capitalising on opportunities available with the wider global marketplace. This is particularly important when you consider that over the next 10-15 years, 90 per cent of world demand will be generated outside Europe – and this is coming from the European Commission itself!
But for SMEs there are real barriers to growth that must be overcome. One of these is the business rates threshold, which many lobby groups are calling for action on ahead of the forthcoming Budget. Whether the government acts to raise the threshold for small business rate relief will be a good early indicator of how bound to their industrial strategy they truly are. Another is the difficulty involved in successfully scaling up, which is caused by a lack of access to long-term funding.
Access to finance
Access to reliable finance, at the right time, is essential to growth and innovation and as a finance provider, I firmly believe we need to fundamentally modernise our business models and increase awareness of alternative forms of finance – this is where May’s industrial strategy should have gone further.
It should do more to promote and create diverse funding models beyond unsecured bank overdrafts. Asset finance is significantly underutilised by SMEs yet it’s a great way to help you make asset purchases without eating into valuable working capital. As a result it can drive innovation and improve efficiency, which is the stated focus for the industrial strategy.
Our heritage lies in manufacturing, it’s in our DNA. We started out supporting Hitachi businesses in the UK over 30 years ago and our finance business grew from there, to a point where we now have over a million consumers and businesses relying on us to provide everything from personal finance to asset and end-to end vehicle solutions.
As a result we’ve seen, first-hand, changes in our industries and manufacturing and understand the need to adapt, evolve and innovate because of our past. This is why we’ve just launched a simple online solution for SMEs to access asset finance up to £500,000.
When you consider the fact that UK SMEs currently employ around 16 million people, which accounts for 60 per cent of all private sector employment in the UK, this sort of online finance solution is key to helping these organisations secure funding and enabling them to drive the UK economy forward.
A strong spotlight on SMEs is exactly what Britain needs to secure a bright future outside of the European Union. Drawing attention to the issues facing this key sector of our economy is welcomed but more needs to be done to encourage SMEs to adopt alternative finance solutions; this way we can really recharge the economy.
Robert Gordon is CEO of Hitachi Capital.