SME: The Chancellor fights for bank bonuses but not for mis-selling victims

Interest rate swap contracts proved disastrous for the finances of many small businesses

No one can accuse George Osborne of stinting in his efforts to protect Britain’s bankers – he only backed down last week from his legal challenge to a European Union edict capping bankers’ bonuses because the European courts made it clear he wouldn’t win, and that fighting on would be chucking good taxpayers’ money after bad.

What a pity, then, that the Chancellor isn’t prepared to put the same effort into protecting the British small businesses who find themselves in trouble because of those very same bankers.

In the absence of such an intervention, these businesses find themselves stitched up no matter where they turn. Having been turned over by greedy banks, they’re getting little help from the financial regulator that the Chancellor created on coming to power four years ago – and now his tax authorities want their pound of flesh too.

All of Britain’s biggest banks are implicated in the interest rate swap scandal, which saw thousands of small businesses mis-sold complicated insurance plans that were supposed to protect them from the potential impact of a rise in borrowing costs.

What the banks didn’t tell these unsuspecting companies was that they could also be landed with huge bills in the event that interest rates fell – as they subsequently did, to historic lows, in the wake of the credit crisis.

Interest rate swap contracts proved disastrous for the finances of many small businesses, severely damaging their cashflow and leaving them unable to pay their bills – such as, for example, the various tax payments they owed to HM Revenue & Customs.

And while HMRC – whose headquarters are in shouting distance of Mr Osborne’s Treasury – was initially sympathetic to these firms, it is now chasing them hard for the money it is owed. Companies that can’t pay their tax bills can even be wound up.

What’s prompted the shift of attitude? Alison Loveday, a small business specialist at the accountancy firm Berg, says that as soon as it became clear that the compensation process through which banks have been forced to offer redress to interest rate swap mis-selling victims would not be paying consequential losses, HMRC began looking much less favourably at small businesses struggling with their tax bills because of the scandal.

The banks, of course, are delighted. Were they to be forced to offer consequential loss compensation – redress for opportunities that small businesses couldn’t exploit because their finances were tied up in an interest rate swap scheme – their bills would be far higher. Instead, most are simply refunding the fees they charged for these plans.

HMRC’s view, however, is that now small businesses don’t have any prospect of a large financial settlement coming their way, there is no longer any reason to given them any leeway on paying their tax bills. It has begun playing hardball, Ms Loveday warns – and she will be making the same point in a Panorama investigation due to be broadcast tonight into the banking industry’s treatment of small businesses, which will feature the cases of firms that claim the banks forced them to shut up shop.

Why doesn’t the Chancellor, who professes himself to be such a supporter of small businesses, intervene in this sorry state of affairs? He could, for example, seek to persuade HMRC to revert to its more sympathetic approach to struggling companies.

Or he could talk to the Financial Conduct Authority, the City regulator running a review of interest rate swap mis-selling, about taking a tougher line with the banks of consequential losses.

Maybe Mr Osborne doesn’t think it is his place to challenge authorities such as HMRC or the FCA, over which he doesn’t have direct operational powers.

Or maybe he thinks that there’s no political mileage in getting into a row on behalf of these cash-strapped small companies.

Strangely, neither consideration seemed to factor in the Chancellor’s previously dogged attempts to protect bankers from rules capping their bonuses.

Aim companies failing over female directors

Have Alternative Investment Market-listed companies got something against women? While their main market-listed counterparts have been winning plaudits for a big increase in female appointments to the board – albeit under threat of statutory quotas – Aim companies are making no such progress. Women accounted for just 7 per cent of appointments to the boards of Aim businesses over the past three years, according to the recruitment agency Norman Broadbent.

Neil Holmes, managing director of UK Board Practice, said: “Aim-listed companies that want to benefit from greater diversity should start by looking at the matrix of skills on the board and determine how they meet the business’ needs and aspirations. They should also broaden their network when looking for directors and consider whether the people being put forward will enhance the board.”

Pros and cons of the business run at home

The growth of the home-based business continues: official figures suggests 2.7 million self-employed now work from home, while Lloyds Bank claims that 84 per cent of the smallest businesses (fewer than 10 employees) are based in someone’s home.

While many are attracted to the idea, it’s not a bed of roses, with Lloyds’ research suggesting a string of potential problems. The average cost of adjusting a home for work is £1,392, it claims, while one third of those Lloyds spoke to missed working alongside colleagues. Home workers even worry about their families causing difficulties, such as the fear work might be destroyed by children.

Lloyds suggests some home improvements for such people: converting a room into an office, getting a better chair, buying a laptop, improving the property’s broadband connection and buying a new smartphone.

Small Business Person of the Week: Paul Thompson, Water Babies founder

“It all started with a split infinitive. In 2001, I was holding down a big job as a company director and not seeing much of my newborn daughter. One night, I was presenting a report to the board and a colleague complained about a split infinitive – I decided to give up my job there and then.

“I took some time off, trained as a scuba-diving instructor and we went travelling – when we returned to the UK, I became a stay-at-home dad. I signed up for every parent and child activity I could find, including a swimming class for babies which I loved from the word go – and I realised this was something I could do as a business.

“We started out small, booking enough swimming pool space for 80 kids and giving ourselves six weeks to sell the places – we signed up 16 babies on the first day and the phone has never stopped ringing. Within a year, we’d agreed our first two franchisees – my sister-in-law and some old college friends, who wanted to change their lives too.

“At that stage we got more serious – franchising is the perfect business model for us because it allows us to keep control over standards, which are vital, but still gives people the opportunity to run their own businesses. I worked with an adviser from the National Franchising Agency to develop our model, but we’ve never had to advertise for new franchisees.

“Personally I’ve come full circle – after changing my life I’m just as busy today as I was in my old job. Getting it right is important because we employ 800 people directly or directly, but the difference is that it’s our business.”