The Government’s Jekyll and Hyde approach to business is confusing
Businesses were once enthusiastic about a Labour government, but a year on we are growing frustrated, says Ravi Anand
In advance of last year’s General Election, conversations I had with small businesses and corporate advisers were overwhelmingly positive towards the prospect of a Labour Government. This was contrary to what you’d expect from the business and finance industry, especially given the manifesto they’d put forward a few years before.
But let’s face it. Businesses like Governments were desperate for stability after the turmoil of Brexit and the Truss mini-Budget.
We all became familiar with Labour’s ‘salmon and scrambled egg’ charm offensive on the City. It was framed to be both pro-business as well as pro-worker. Everything was focussed on ‘going for growth’.
And yet, a year on, again speaking to the same businesses and advisers, the reality is that the Government’s optimism and growth message has become just that, a message. Where is the dynamism and innovation? The Base Rate may be falling, and inflation is steadier, but appetite to invest and grow is subdued, worsened by the recent tariff shenanigans.
Allergic to business
From the outset, I think it is important that politicians of any colour do not become allergic to understanding how businesses work. One only has to look at the bond markets as a reminder that money does not grow on trees, especially if you want to spend money on things that voters want.
Business owners understand the pressure on the public purse and the state of public services. It is therefore frustrating when we have targeted business taxes, which inevitably have a chilling effect on growth.
The increase in employer national insurance contributions killed any ambition of businesses to recruit and indeed, many companies have cut back, particularly when combined with the proposed and concerning changes to employee rights
The increase in employer national insurance contributions killed any ambition of businesses to recruit and indeed, many companies have cut back, particularly when combined with the proposed and concerning changes to employee rights. Many of the sectors where people, especially younger adults get their first job, such as hospitality or retail are primary examples of this and are part of a wider solution to reforming welfare. The regressive hike together with an increased minimum wage simply choked off growth.
And yet, there have been sensible steps that I welcome. The forthcoming industrial strategy, the strengthening of the British Business Bank, new trade deals, the creation of the Business Growth Service as well as reforming the payments system.
The Government also recently announced a call for evidence to improve access to SME Finance. For too long, many SMEs, have been rejected from bank funding. This is damaging to productivity and means businesses who are looking to invest in new technologies or make acquisitions have to rely on internally generated cash flows and therefore organic growth. Our analysis shows that companies which borrow are two to three times more likely to grow above inflation than those which don’t.
Previous efforts to reform banks’ stranglehold on lending (and therefore growth) have led to an ineffective referral scheme where banks, who have lost the expertise to lend to SMEs since the financial crisis, often deter customers from applying in the first place. If the Government wants growth and to support SMEs, if necessary, it should force the banks to open up their books to a list of lenders who could support them instead.
The next focus will be on the forthcoming industrial strategy and then ahead towards the Budget.
The clear message from businesses, corporate advisers and from lenders like ourselves is that Government should listen and act with clarity and immediate actions. If you want growth and wish to fund better public services, then get entrepreneurs and their businesses on side and allow them the space to breathe and grow.
Ravi Anand is managing director of ThinCats