Government should look to UK firms for business solutions to drive growth

The British Chambers of Commerce (BCC) says the UK has avoided going back into recession. Its quarterly economic survey of businesses predicts growth of 0.3% in the first three months this year.

BCC director general John Longworth told the BBC Radio 4’s Today programme this week that they were predicting slow growth, "bumping along the bottom" for the first six months of 2012, picking up in the second half of the year and then stronger growth in the following year.

But whilst we may be skirting a recession as business bounces back from the lull, what can Government do to take action to stimulate the economy?

Although the reduction of corporation tax by 1% was welcome in the recent Budget, by comparison raising the business rates by 5.6% and doing nothing for capital allowances meant that the Budget wasn’t a Budget for business, it was a Budget for politics.

The BCC is therefore asking the Government for a focus on infrastructure.  There are two things they say that the government needs to do in the medium to long term in order to accelerate recovery now and keep business confidence;

 1. Big infrastructure. While the government has promised positive changes that will help businesses, improved transport infrastructure and deregulation for example, they are yet to become a reality. These medium- and long-term measures must be brought forward to help businesses grow and create jobs. 
2. Digital infrastructure and the infrastructure of education - skills which are important and that will insulate us against possible external factors like the Eurozone crisis, American debt and oil crisis.
There is no doubt that business supports the need for the government to persevere with its deficit-cutting plan, but there must be a significant reallocation of spending priorities. There must be a greater focus on policies to support growth that will enable businesses to create jobs, invest, and export. 

What we have to understand is that living in a global economy what may or may not happen in Europe in the next 6 months often is the determinate of what happens to us.

We could however avoid that fate in the longer term. Of course external threats still exist but by committing to infrastructure projects now, in the medium to long term will encourage businesses that do have cash to start to invest that money for growth and for jobs.

The BCC’s survey indicates that export and manufacturing balances are going very positively and its encouraging to see that businesses are feeling more confident at the start of 2012 than they were at the end of 2011.  The thing that hindered recovery in the last half of last year was cash flow, so the government really needs to look at giving businesses access to capital if they haven’t got cash.

Access to finance is still a real problem for many firms, and more must be done to mean that this doesn’t threaten recovery. More radical measures, such as a state backed SME lender, should be implemented to address the gap in business funding. (Over the medium-term, Vince Cable suggests that part of RBS be used) which could eventually be returned to the private sector.

It remains to be seen if this measure could be introduced in the UK. Other European countries and the US, the BCC say have business banks that run very successfully.

In fact, state the BCC it is companies like Microsoft that started with loans from a business bank in the US.

The UK economy is still facing huge challenges and the recovery is much too slow but if we want to see the Microsofts of the future here in the UK, then the government has to set businesses free to grow and drive recovery.

What business really wants to hear is confidence from no change - for the Chancellor to say that there are no changes, we haven’t moved on and that nothing radical has changed to the public outlook.

Top of the wish list for business in the Budget is business solutions, growth and to jump start the recovery and generate jobs. But whilst many business leaders are firmly behind George Osborne’s deficit busting plans, these 5 points consider the direction the Chancellor should consider.

1.  Increased help for small businesses: 

The Chancellor will imminently confirm that top banks have signed up to the government’s National Loan Guarantee Scheme which will boost lending to small business.

But whilst it is a step in the right direction it won’t solve the problems faced by businesses trying to access finance.

The National Loan Guarantee Scheme will make some loans more affordable. But it will not help the smaller, younger, and high-growth firms that have trouble getting credit in the first place.

Since credit easing will be accessed via the banks, lenders will need to work harder to encourage firms, many of whom have been turned down for loans in the past, to consider applying for credit. Banks will need to ensure that their staff are able to fully explain these new loans, and that those business owners that aren’t eligible for the scheme, are advised of suitable alternatives.

More radical action is needed. Over the medium-term, a brand-new, fully-fledged state-backed SME bank, which could eventually be returned to the private sector, should be created as a matter of urgency.

2. Less red tape:
Clearly another positive area to aid business recovery would be to cut red tape. UK companies need to be able to position themselves to be able to compete competitively for contracts, strengthening their supply chain and removing obstacles that may weaken their case.

By automating more government processes and a better integration with business software will allow businesses to get goods and services to market within a shorter timeframe and this needs to be encouraged.

3. Tax cuts:
Likewise business wants to see an investment in people. If there is one measure that business really would welcome, that would help the economy because it would generate jobs and grow organisations is a National Insurance contributions holiday because that would make job creation less expensive.

At the moment National Insurance is just a tax on jobs which could be put to better use to reinvest funds into learning and training, making staff more effective and business more productive.

What business wants to see is that the credit rating is maintained and to get access to lower interest rates.

4. 50p tax rate:
Scrapping of the 50p tax rate is expected but is a thorny topic for government who are accused in being more interested in cutting taxes for the rich. However it has been said that if the Chancellor cuts the rate from 50 to 45p, will the gain in business confidence really outweigh the political downside? Is the 5p cut really enough of a signal to foreign investors to come and do business in Britain? If Mr Osborne is going to take the risk, he might as well go the whole hog and abolish the rate entirely so that more rich people stay in Britain – as the argument goes – and pay more tax the long run.

5. Revolution in planning rules:
One of the most heavily affected industries of recent years is construction and current planning rules are holding back economic development in Britain. As an industry fallen victim to mass un-employment, a shake-up in planning rules will make it a lot easier for building to take place in this country that will allow businesses to expand and people to have decent homes and children to be able to afford a home when they grow up.