Leading article: There is nothing pro-business about risking another slump

Mr Cameron seems to have missed the fact that small firms were critical of his deficit-cutting plans
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The Independent Online

It was a day when the world of politics came to pay tribute to the world of business. David Cameron, Ed Miliband, Vince Cable and Nick Clegg all made their way yesterday to the CBI's annual conference to speak of the importance of the private sector. And all these politicians sought to portray themselves as thoroughly "pro-business".

Yet this raises the question: what is the appropriate way for the state to promote the private sector? The Prime Minister made approving reference in his speech to the letter last week by 35 well-known businessmen in support of the Coalition's plans to wipe out the deficit over the course of the Parliament. But a danger lies in the assumption by ministers that the heads of large businesses speak for the entire private sector. Very often, they do not. Mr Cameron seems to have missed the fact that the Federation of Small Businesses was sharply critical of the Government's deficit cutting plans.

Large companies and smaller firms have had very different experiences since the recession began two years ago. Banks that made crippling losses in the credit bust drastically reduced their flows of lending as they sought to repair their balance sheets. Large firms have been able to tap finance from the bond markets directly. But smaller firms, which are mostly reliant on bank lending, have suffered much more during the ongoing credit crunch. There are other areas of divergence between the interests of large and small firms. The head of Topshop, Sir Philip Green, suggested in his recent review of Whitehall waste that the Government should delay paying its suppliers in order to save taxpayers' money. The impact of such a shift on firms with billion pound turnovers would be negligible, but it would be disastrous for many smaller companies with government contracts.

The Coalition is keen to promote British exports. But there seems to be an assumption in parts of the Government that this means promoting existing large firms abroad. Mr Cameron demonstrated this tendency when he packed his official plane to India this summer with the great and good of the British business establishment. Yet, historically, small firms are more likely to be a source of growth than large ones. Some of the biggest and most successful firms of today – such as Vodaphone and EasyJet – did not exist two decades ago. At times Mr Cameron seems to regard his function as being a cheerleader for large businesses, rather than a promoter of competition and a guarantor of a level playing field.

There is a split personality in the Coalition when it comes to business. The Prime Minister yesterday cited the £30bn of state investment in transport projects over the next four years. But capital spending is still being cut dramatically in real terms by the Coalition. And, as the Labour leader, Mr Miliband, pointed out, the Government is seeking to eradicate the budget on a recklessly short timetable. There is nothing "pro-business" about risking another recession by sucking public spending out of the economy in this fashion.

The Prime Minister talks the talk when it comes to the need to support smaller firms, telling the CBI "we've got to back the big business of tomorrow, not just the big businesses of today". Yet his actions often suggest a philosophy of supporting existing winners.

Meanwhile, the Business Secretary, Mr Cable, clearly understands the imperative of compelling the banks to lend to small firms, but has given his support to a needlessly draconian deficit reduction plan that could undermine, rather than encourage, the kind of long-term investment he wants to see. It is too soon to tell which of the two sides of the Coalition's approach to business will prevail. But if this confusion continues, there is a danger that the British economy will be left with the worst of all worlds.