FSB: Government must cut tax and provide new funds for small firms in the Pre-Budget Report

The Government must announce a new £1billion fund for small firms in the Pre-Budget Report, the Federation of Small Businesses (FSB) said today.

Small firms need innovative and short term solutions for new finance in order to get through a looming recession, and ensure the economy is put back on track as quickly as possible.

The FSB has called on the Chancellor of the Exchequer to establish a new £1billion Small Business Survival Fund, and to scrap proposed rises in corporation tax in his Pre-Budget Report on November 24.

The new fund would replace the Small Firms Loan Guarantee scheme in the short term, and would operate under new criteria to get the money to those small businesses that need it most.

The FSB is also calling on the Government to make new funds available from the European Investment Bank (EIB), through its Regional Development Units (RDAs).

The Small Companies’ Tax Rate, which is due to be increased from 21 per cent to 22 per cent in April 2009, will be another burden for small businesses.

Federation of Small Businesses National Chairman John Wright said:

“Small businesses are facing a crisis as finance dries up and the cost of finance rises. The Government must do everything it can to ensure small firms do not need to turn to alternative and expensive sources of finance. A Small Business Survival Fund will provide the urgently needed solution.

“The UK’s 4.7 million small businesses need more than talk, we need action. Alongside new funds made available in new ways, we also need to see the Government act immediately to reduce the burden of small companies’ taxation.”

Ends

Notes to Editors

The FSB is Britain’s biggest business organisation with over 215,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk.

The FSB proposes that the Government sets up a Small Business Survival Fund which takes over from the Small Firms Loan Guarantee scheme1 in the short term. This should be reviewed in six months times. The FSB recommends the following practical measures:

– Increase short term funding to the Small Business Survival Fund to £1billion to be reviewed in six months time2;

– Allow businesses to apply for intangible outcomes such as working capital and staff training, as well as tangible outcomes from finance;

– All recapitalised banks must offer the Small Business Survival Fund, and the Financial Services Authority (FSA) must stipulate that all banks and business advisors such as Independent Financial Advisors promote the scheme to small businesses;

– EIB money, when active, should be bought by the government and distributed to small businesses through the Small Business Survival Fund3.

In addition, to ensure that Small Business Survival Fund money reaches those businesses most in need of funds, the FSB calls on the Government to rewrite the criteria for eligibility for funds to include:

– Businesses with under £5.6m turnover;

– Businesses with up to 250 employees;

– The age of a business not to be an excluding factor;

– All sectors of business will be able to apply to the Small Business Survival Fund

– A guarantee to the lender covering 75 per cent of the loan amount

These practical steps will provide the short term finance on which small businesses depend.

1 Small Firms Loan Guarantee scheme 2007/08 distributed £207m to 2617 applicants. The current criteria are: A guarantee to the lender covering 75 per cent of the loan amount, for which the borrower pays a two per cent premium on the outstanding balance of the loan, payable to BERR/the ability to guarantee loans of up to £250,000 and with terms of up to ten years/availability to qualifying UK businesses with an annual turnover of up to £5.6million/availability to businesses in most sectors and for most business purposes, although there are some restrictions

2 FSB figures show 25 per cent of SME’s used a bank loan as a source of finance. If this was to be replicated amongst the 4.5million SMEs in the UK it would amount to £90billion. The banking industry received loans, reassurances and safeguards worth £500billion. We recommend that the SFLG be funded to a level of five times the amount of 2007/08, £1billion, and be reviewed in six months time.

3 Government should purchase £25m segments of EIB redistributed money and place them into the total government guaranteed amount of the SFLG, to be lent by the recapitalised banks.

Contacts:

Stephen Alambritis: 020 7592 8112 / 07788 422155
Sophie Kummer: 020 7592 8128 / 07917628998
Prue Watson 020 7592 8121 / 07825 125695
Marc Shoffman 020 7592 8113 / 07595 067068

For regional FSB contacts please go to www.fsb.org.uk/regions.