David Prosser: Mark Carney must help the tiddlers
Those who hoped Mark Carney, the new Governor of the Bank of England, would use his first major public appearance to promote enterprise and small business will be feeling disappointed. Mr Carney's first Inflation Report last week may have excited economists – the shift to offering forward guidance on monetary policy is significant – but small and medium enterprises, despite a call from the sector for action, didn't get a look-in.
Let us be fair to Mr Carney: much of what SMEs wish for is not in his gift. An open letter from 15 prominent figures in the small business community last month demanded the Governor work to promote alternative financial services providers, make the Prompt Payment Code legally binding, push banks to offer more direct relationships with SMEs and require greater transparency from banks on charging and credit scoring. There is a good case to be made for all of those demands, but he does not have the powers necessary to meet them.
So what could the new Governor do to boost small businesses? Well, the forward guidance policy is a good start – it gives any business with borrowings greater confidence that there is no reason to fear a hike in the cost of servicing that debt in the near future. It also sends a signal that the Bank is committed to securing economic recovery, even at the expense of further failures to hit its inflation target, which should also be reason for optimism.
The Governor could go much further, however. In addition to the Monetary Policy Committee, he chairs the Bank's Financial Policy Committee, set up in the wake of the financial crisis to "identify, monitor and take action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system". It has ultimate responsibility for ensuring that the banks' liquidity and capital buffers are sufficiently strong.
Crucially, the FPC has a remit to operate counter-cyclically. Broadly speaking, it should be tougher on liquidity and capital when the economy and the financial system are stronger, and more relaxed during times of stress. The idea is simple enough: having forced banks to operate with decent safety margins, the FPC is able to cut them some slack during tougher times. That, in turn, should enable them to avoid turning the screw on customers.
We have yet to see the FPC work this way. The Bank's requirements on both capital and liquidity are ever more exacting. The result is that lenders have no choice but to shrink their balance sheets – to rein back lending, including to SMEs. If debt really is inaccessible to many small businesses, as their advisers insist, this is what lies at the heart of the issue.
There are senior figures in government who recognise this problem. It is this issue to which Vince Cable, the Business Secretary, was alluding when he talked of the Bank of England's "capital Taliban" last month. Mr Cable has met the new Governor to press home the point (presumably in rather more diplomatic language). For while the Bank has told the banks it expects them to meet its capital and liquidity targets without reining back on lending to small businesses, that's tough to do in practice. It's not just the amount of lending that matters but also the way regulators assess it. Some loans to SMEs are classified as five times as risky as mortgage debt, and so need five times as much capital underpinning them. No prizes for guessing which type of advance a bank would rather offer.
It doesn't help that the banks do not say any of this in public; they prefer to stick to the line that they are offering credit to small business and that lower total lending figures reflect a lack of demand rather than a shortage of supply. There is an element of truth in the argument – businesses of all sizes have been cautious in the extreme over the past few years.
If, however, the economic recovery can be sustained, particularly with the assistance of Mr Carney's confidence-inducing forward guidance, that caution may ease, which should see demand for lending return. Without some assistance from the Governor and the FPC, the banks will find it difficult to meet that demand, constraining the ability of credit-starved businesses to grow.
Waitrose gets a taste for Miller's
The maker of Martin Miller's Gin has struck gold after landing a game-changing deal with Waitrose to supply it with the Iceland-blended, Midlands-distilled drink.
The company was set up by Martin Miller and David Bromige in 1999 when vodkas were all the rage. But the founders say gin is gaining popularity, with 150,000 cases a year of their brand now sold in 40 countries.
The company's turnover rose to almost £13m last year, and the Waitrose contract should see it climb considerably higher. Martin Miller's Gin is distilled in the Midlands and then shipped to Iceland to be blended with water.
Bill payers still lagging
So much for the Prompt Payment Code, which was supposed to protect small and medium-sized enterprises from larger firms that fail to settle bills on time. Experian, the business information service, says the average firm paid its bills 24.58 days late in the second quarter, up from 23.46 days a year earlier. Big businesses typically paid their bills 34.19 days late, up from 30.91 days.
Small businessman of the week
Charlie Green, The Office Group I founded The Office Group 10 years ago with my partner Olly Olsen; our background was in property and we both felt there was an opportunity to do something different in the serviced office sector; not so much that there was a gap in the market, but that it was possible to turn the existing model on hits head.
"We wanted to challenge the industry because until then, most clients saw serviced offices as an expensive and temporary solution for their businesses; we were also looking around for a location for our own business and couldn't find anywhere we felt enthusiastic about.
"Our target market was micro-businesses with fewer than 50 employees and we wanted to offer them good value office accommodation that was also more aesthetically pleasing – with good outside space, for example.
"The business is 10 years old, but in ways it feels as if we're just getting started because we're now seeing a change in the way people think about flexible working.
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