You hear that sound? Just beneath the big, brassy noises being made about growth and the banks and the cost of living? That’s one of this Parliament’s most insistent leitmotifs: the leitmotif of small business. It’s there in the news, this morning, that Osborne may offer a National Insurance cut to help companies get over any increase in the minimum wage. It was there in Miliband’s speech yesterday, and his observation that “just four banks control 85 per cent of small business lending”. It’s been there almost every day since this Government was created. Small business, small business, small business.
Put aside the fact that not all small businesses deserve this love – some are pretty terrible, y’know – and you can understand why politicians wax on like this. There is, after all, some truth in those clichés about small businesses being the lifeblood of our economy, so why not help the flow? If Osborne were indeed to cut employers’ National Insurance contributions it would be a welcome policy. What he’s done so far is already, and happily, expected to save employers a collective £5.5 billion a year by the end of this Parliament.
But there is one area, in particular, where politicians’ concern for small business has become a dangerous fetish – and that is lending. You’ll know the story already. There are, we’re told, a million small businesses who are struggling to exist because the horrible, rapacious banks won’t extend them a little bit of cash. Miliband said as much in his speech yesterday – “the small and medium sized firms that could create the good, high paying jobs of the future can’t get the finance they need” – but it’s not just him. Huge government schemes, from Project Merlin to Funding for Lending, have been predicated on the idea that small business need more credit. And, even then, it’s still not enough for Vince Cable.
But here’s a question I’ve asked before: are small businesses really thirsting for credit? It is true that they found it more difficult to borrow in the aftermath of the financial crisis, but was this a necessary correction after years of easy money, or does it need correcting back again now?
The latest edition of the SME Finance Monitor – a quarterly survey which ought, generally, to receive more attention in Westminster – has some answers. Its headline is “The rise of the non-seeker of finance”. Actually, I’ll repeat that in capitals, so that even hyperopic politicians can’t miss is: THE RISE OF THE NON-SEEKER OF FINANCE. And it contains some findings that are worth noting down. Did you know, for instance, that…
“In Q3 2013, 78 per cent of SMEs were ‘Happy non-seekers of finance’, based on their behaviour in the 12 months prior to interview, and the highest level recorded to date on the SME Finance Monitor (in Q3 2012, the proportion was 67 per cent). These SMEs had neither sought new/renewed loan or overdraft facilities in the 12 months prior to interview, nor felt that anything had stopped them from applying.”
“40 per cent of SMEs met the more specific definition of a ‘Permanent non-borrower’, those SMEs that had not used, nor wanted to use, external finance, nor had any plans to apply for any in the near future.”
…or that only a subset of a subset of SMEs wanted to apply for credit, but didn’t because they had been discouraged by a bank…
“7 per cent of SMEs in Q3 2013 met the definition of a ‘would-be seeker’ of external finance, who had wanted to apply for a loan or overdraft but felt that something had stopped them. … For both loans and overdrafts the main barriers to an application were the process of borrowing (the hassle, expense, security etc – cited by 38 per cent of those who would have sought an overdraft and 36 per cent of those who would have sought a loan) and discouragement (38 per cent for overdrafts, 45 per cent for loans).”
…or that probably not all SMEs should automatically qualify for credit?
“…the proportion of SMEs rated a worse than average risk increased slightly, and is currently 54 per cent.”
Honestly, I could go on and on, but I don’t want to hammer the point too hard, not least because there will be some deserving, struggling small businesses among those refused credit recently. So let’s just say that the above numbers complicate the usual story we’re told. Politicians are persistently trying to encourage more borrowing, whether it’s by first-time buyers or company directors. People themselves may not be so eager to get into debt.