Call me old fashioned, but when a Treasury aide recently described a new raft of economic policy announcements as ‘Maxing Out Plan A’, I felt slightly embarrassed.
I immediately thought of a small garden centre owner in my constituency – of a bright and hardworking young man who began his business from a seed of an idea during my time as the local MP.
It has been both nail-biting and exciting to watch his business grow – and throughout, it has been fascinating to watch the impact that both national economic policy and the competence of local council departments can have on an emerging business.
My garden centre owner has sacrificed a huge deal to make his business work, as has his wife. "Maxing out plan A" made it sound as though a schoolboy was announcing our economic growth strategy when what my constituents need to hear, in the midst of an environment of financial fragility is a comforting, substantive reassurance that the economy is in safe, grown up hands.
Cash flow absorbs the mind of almost every small to medium business owner; it is a daily battle. Often, it’s a combination of poor liquidity and bad debtors which can bring a good business down. A full order book is of no use if you can’t pay the wages today and this is where the banks play such a vital role.
Last year, when the Chancellor announced the National Loan Guarantee Scheme (NLGS) to provide cheaper lending to businesses with a turnover of up to £50m, I was quite excited. I have a small number of established, struggling businesses (including my garden centre) who could really do with some of that cash.
The problem is: banks don’t appear to want to lend to business. Interviews with the bank and extensive form-filling appear to have been not much more than a tick box exercise for some, and although in this case money was promised from the bank in the form of a loan, the cash was never forthcoming. My business owners felt as though they had been part of a target-driven exercise deployed by the bank to demonstrate that a loan had been proffered.
It appears that the banks have been going through the motion of evaluating the need for cash, but deciding that as the risk and accountability is ultimately theirs in a number of ways, they won’t lend what was in effect the Government’s slug of cheap cash to businesses.
In some cases I am sure the banks have been right to be cautious. After all, no one wants to see a the mortgage subprime fiasco replayed, this time with risky loans to business. It does nothing to help the economy if the Government throws cheap money at bad business models which ultimately go bust.
However, not only do the banks appear to be not terribly keen to lend money to existing businesses, but it would seem that there is hardly a queue of new businesses clamouring for loans. The announcement of the NLGS did not bring forth a rash of entrepreneurs bursting with rapid money-making ideas lacking only a bung of cheap cash to convert into the wealth and job creators of tomorrow. Therefore, I was a little surprised during his recent Mansion House speech to hear the Chancellor announce yet another £80billion to be made available to banks for the purpose of lending to business.
The new scheme is to be called "Funding for lending". The funding comes from the Government’s ability to borrow cheaply on the markets – one would imagine in exactly the same way as the money is raised for the NLGS, against government held guilts. But although announced at the Mansion House, there are no scheme details available.
The question "what is the difference between the NLGS and ‘funding for lending’" screams out to be answered. Why will one scheme encourage the start up or expansion of business, as opposed to the other?
We are all grateful that money is being made available to the banks in order to lend. The announcement that the ‘funding for lending’ scheme will inject £5 billion liquidity per month into banks in order to support business means the banks cannot put up the objection that cash deposits are tight.
But what about the message to encourage the entrepreneur, the wealth creator, the family man about to risk his home to start up his fledgling business?
If, this week he was about to put on his coat and pop down to the bank for a chat, the message that the government is "maxing out plan A" would be enough to make him put his coat and brolly back on the hook.
If his business is a good idea today, the chances are it still will be in a couple of years, why rush?
Whoever it was who dreamt up such a childish message should be taken out and…..