Whenever I read the business news these days, a picture of Private Frazer from Dad's Army comes to mind: “We’re dooooomed!”
But it’s not all bad news. Although net borrowing is not falling as much as the government planned, and there will still be some structural deficit by the time of the next general election, it is falling, and is predicted to continue to fall even when the lower growth rates are factored in. This should keep interest rates low, although the difference between the base rate and the rates banks are offering SMEs remains staggering.
The predicted growth rates are indeed disappointing – a double-dip recession is a distinct possibility – but the Office for Budget Responsibility predictions look good for a significant recovery starting in the last quarter of 2012. They predict growth of 2% by the middle of 2013 and 3% by the middle of 2015.
All this assumes that the Eurozone can sort out its problems and this looks doubtful at present. I fail to see how there can be an effective single currency when each country is pulling in its own direction for political or ideological reasons. This is clearly the biggest threat to UK businesses and what we need least of all is uncertainty. The longer this Eurozone mess continues without a proper solution, the longer it will take for there to be a recovery in the UK, and the prospect of a disorderly disintegration of the Euro is the stuff of nightmares.
The Chancellor’s Autumn Statement did provide some useful measures. I have for a long time been saying that the government needs a growth strategy, and not just a debt reduction plan, and that the growth strategy must focus on the SME sector.
The credit-easing program provides for the government to underwrite up to £40 billion in low cost loans to SMEs. George Osborne says that this, coupled with the National Loan Guarantee Scheme (will they effectively be merged?), should mean interest rates of around 1% less than would otherwise be the case. This is an important measure as I have seen many businesses fail, not because the banks weren’t prepared to lend, but because they could not give adequate security. SME business owners have usually already given personal guarantees and charges over their properties and, with property prices having fallen, there’s often not enough equity to secure bank lending. This could make the difference.
£1 billion will be made available through a Business Finance Partnership to invest in SMEs without having to go through banks. This is a great idea but I wonder whether £1 billion will be enough and what the lending criteria will be.
The extension of the business rate relief will indeed be a relief, as will the freeze on fuel duty increases.
The government scheme to introduce 95% mortgages to first time buyers buying new properties to be underwritten by the government will indeed help the moribund housing development sector. However, asking developers to cough up 3.5% to the indemnity fund won’t help.
I am also reminded that, when looking at statistics for growth, these are averages. Some businesses, particularly in niche manufacturing and engineering sectors, are doing very well. When we do eventually recover, this might be a manufacturing-led recovery rather than a property/finance-led one, and that will certainly help to rebalance the economy and help us compete on the world arena.
Gary Cousins
Business Solicitor
