Starting up

No-one should under-estimate the essential contribution that small businesses make to the economy. More importantly, the growth of some of those small businesses is essential to the UK’s long-term economic viability.

The last Labour government introduced the Enterprise Finance Guarantee scheme, to boost lending to small businesses following the global financial crisis. However, according to the statistics published just before Christmas, lending under the scheme has fallen dramatically from £737,129,000 in 2009/10 to £201,903,000 in 2012/13

This is just part of a much bigger problem as, according to the Bank of England, net lending to businesses has fallen by £13.5 billion over the past year. The use of external finance by small firms has fallen to its lowest level in more than two years. More than a quarter of small business owners have been forced to inject personal finance into their business in the last year against their wishes according to the most recent SME (small and medium enterprise) finance report.

The government has failed to get banks lending to businesses and the government’s abandoned Project Merlin and credit easing schemes made no real difference. Yet, the same government Ministers are letting the banks break the promises they made more than two years ago to do more to help small businesses get access to the finance they need.

The banks promised to make firms, turned down for finance, aware of an independent appeals process and of alternative sources of finance. Yet only 9% of firms who had a loan application rejected said they were made aware of these by their bank, and even fewer were referred to other sources of help and advice – the most recent SME Finance Monitor (the biggest survey of small businesses’ access to finance) found.

Yet, the six banks and building societies that used the Funding for Lending Scheme sucked £1bn out of the economy in the three months to September, with much of the lending appears to be lowering mortgage rates rather than helping small businesses.

We desperately need our high street banks to better serve the needs of our small and medium sized enterprises, but instead they are turning a blind eye. Ministers have failed to help small businesses struggling to access the finance they need to expand.

As we start 2013, there’s an urgent need to review how new business starts can be supported and how small businesses can be helped to grow.

Fairness? You decide

David Cameron keeps telling us that ‘we’re all in this together’ and ‘there must be fairness in all the decisions we take.’

Well, I’ll let you decide on the fairness of the decision to cut the incomes of millions of ordinary working families – a one-earner family on £20,000 with two children will lose £279 next year, and this is after the impact of the personal tax allowance increase, but does not include the £450 a year worse a family will be as a result of the VAT increase – so that millionaires can have a £100,000 tax cut.

And, you might also want to reflect on the fairness of the recent local government finance settlement. The 20 most deprived authorities will have their spending power cut by an average of 8.0% between 2012-13 and 2014-15. However, the 20 least deprived authorities will have their spending power cut by an average of just 0.7% between 2012-13 and 2014-15.

Locally, our councils have been hit hard again. Chesterfield is proportionately the hardest hit with a 14.5% cut in its spending power. NE Derbys 7.8% cut, Sheffield 7.3% cut, Rotherham 6.4% cut, Barnsley 6% cut, and Doncaster 6.8% cut, are all near the top end of losses. Meanwhile, David Cameron’s local council, West Oxfordshire, gets a 1.1% increase. Suffolk gets a 6% increase.

Even the coalition government’s informed supporters don’t think it’s fair. The former Conservative chair of the Local Government Association, Baroness Eaton, described the effect of local government cuts as 'detached from the reality that councils are dealing with'. Her Conservative successor, Sir Merrick Cockell, called the cuts 'unsustainable'. And the Tory Leader of Kent says his county 'can’t cope' with further reductions and 'is running on empty'. And their councils are getting the best deals.

Anyone who thinks that the scale of cuts being required of local councils will not have a big, negative impact on local services – like libraries, sports and recreation facilities, Sure Start centres – is just fooling themselves. But no-one can deny that the poorest communities will get the hardest hit.

Is it fair? You decide.

No crib for a bed

This week, in thousands of schools, nurseries and churches, the Christmas story will be being re-told. Parents will be enthralled as they watch the re-enactment of Joseph and Mary’s search for a bed. So, it is timely to reflect on the search for a bed in the UK today.

Back in 2008, David Cameron said "I think that it is simply a disgrace that in the fifth-biggest economy in the world that we have people homeless, people sleeping on the streets, sofa-surfers, people in hospitals."

I agreed then and agree now. Perhaps it was just an error on his part that he forgot to mention that, under the Labour governments, homelessness had fallen by 70% from the inheritance of the previous Conservative government. That hadn’t happened by chance. It happened because of a concerted effort between central and local government, through the introduction of the Supporting People programme.

But what has happened since David Cameron took control in 2010?

• Homelessness has risen relentlessly. Statutory homelessness, where families without a roof over their head are accepted by their local council as homeless, has risen by nearly a third since the general election.

• The number of people sleeping rough has risen by 31%. Even more worrying, the number of young people sleeping rough has increased by 66%.

• There are now more than 75,000 children living in temporary accommodation, and the use of bed and breakfast hotels has tripled since 2010. There has been a near 200% increase in the number of families in bed and breakfast accommodation for more than 6 weeks.

This isn’t surprising when you realise the scale of the government cuts. There are 1544 fewer bed spaces for the homeless compared to just 12 months ago, and 60% of these projects have already had significant funding cuts this year and expect more next year.

When this is taken together with the continuing reduction in new housing starts – which have fallen in each successive quarter since 2010 – and the 60% cut in the affordable housing budget, we shouldn’t be surprised by the impact. And it will get even worse next year, when the housing benefit changes are estimated to result in a further 40,000 households becoming homeless. Will we see headlines confirming that stables are to be used to provide emergency shelters?

None of this has happened by chance. It’s happened because David Cameron has chosen to do it.

Failing the test

In 2010, David Cameron, Nick Clegg and George Osborne said that there was one simple test by which the Conservative-Liberal Democrat coalition government should be judged. The test they chose was “to balance the books and get the debt down by 2015”.

Last week, in his Autumn Statement, George Osborne confirmed that the government would fail this test. Borrowing and debt figures have been revised upwards and the economy is shrinking. But, instead of a change of course, Osborne confirmed we’re going to get more of the same failing policies.

Over the last two years our economy has grown by just 0.6% - compared to the 4.6% the government promised, 3.6% in Germany and 4.1% in America – and this year is now predicted to contract. Growth forecasts have been downgraded yet again for this year, next year and every year up to 2016.

Nearly 1 million young people are out of work, long-term unemployment is rising and the claimant count is forecast to be 275,000 higher by 2015. Prices are forecast to carry on rising faster than wages for at least another year.

George Osborne was forced to confirm that he will not meet his fiscal rule to get the debt down by 2015, and that his pledge to balance the books by 2015 will also not be met until 2018 at the earliest. Borrowing and debt figures have been revised up this year and for future years. The government is set to borrow £212 billion more than they planned – more than the plans the government inherited and condemned at the time for not going far enough. The reason why borrowing and debt has been revised up is because slow growth and high unemployment means tax revenues are down and the benefits bill is up.

The government has decided that people on low and middle incomes should pay the price for their failure. They are pressing ahead with a £3 billion tax cut for the highest earners in the country – worth an average of £107,000 for 8,000 people earning over £1 million. Yet at the same time people on low and middle incomes are being hit hard with higher VAT, the granny tax, and real terms cuts to tax credits, jobseekers allowance, child and council tax benefits.

What kind of government believes that low-paid working people will only work harder if you take away their tax credits and make them worse off,  but millionaires will only work harder if you give them a tax cut to make them better off? One that fails the test.

Throwing away jobs and economic growth

Earlier this year, I chaired an all-party committee which looked at regional economic growth. In particular, we were looking at the use of the regional development funds in a context where the government had abolished the regional development agencies.

The European Regional Development Fund (ERDF) is the EU's main tool to reduce economic disparities between the regions. Worth €201 billion between 2007-13, most of the funding goes to the poorer regions in eastern and southern Europe. England's allocation during this period was nearly £3bn, with the largest share of the funds going to Cornwall and the Isles of Scilly, Merseyside and South Yorkshire, all of which face significant and long-standing challenges to economic growth.

It has contributed to major schemes such as the Eden Project in Cornwall, the Sage concert hall and the Baltic art gallery in Gateshead and the Kings Dock redevelopment in Liverpool and, many years ago, the renewal of the Lyceum Theatre in Sheffield. It has also supported many smaller projects across the country to boost enterprise and support small businesses.

However, ERDF funds have to be matched by public bodies in the UK – for every £ in ERDF grant, a public body – like a council – has to invest a similar amount. The abolition of the Regional Development Agencies removed the main source of match funding for ERDF projects, and the economic downturn has reduced the options for match funding even further.

We concluded that the Government simply did not seem to appreciate the problems that projects are facing in securing the match funding needed for them to go ahead. It failed to deliver on its promise to make it easier for projects to use its Regional Growth Fund (RGF) as match funding.  We urged the Government to set aside RGF money specifically for this purpose.

We were quite clear that if urgent action wasn’t taken to spend each region's ERDF allocation before 2015, the UK would not only be returning unspent ERDF grant, but also that value for money would suffer and ERDF would not make the significant impact it might do to generate economic growth in areas with the highest unemployment.

We believed the government was being totally complacent about the matter. Having abolished the Regional Development Agencies in a fit of ideological pique, it simply didn’t understand – or perhaps even care – how important ERDF funds were to local economic regeneration.
Last week, I reminded Michael Fallon - the Business Minister responsible – about the Committee’s recommendations which would have ensured that all the ERDF resources would be used and which the government had rejected.

For the first time he confirmed that ERDF would be underspent. In other words, grant-aid from the EU budget specifically designed to secure economic regeneration in the UK’s poorest areas was going to be returned to Europe.

Thus, at a time when we need to use every endeavor to increase local jobs and to support economic renewal, this government – through sheer incompetence and ideological indifference – has thrown away millions of pounds in grant which would have made a significant difference to the poorest areas in the UK.

Yet the media ignore it. Of course, it doesn’t involve sex, scandal or chocolate. It’s just about a huge loss of jobs and economic growth in communities which need it most. It’s about thousands of people who will remain on the dole instead of working in productive jobs.
It’s a scandal.