EXAMINATION
OF WITNESSES
(QUESTIONS 453-459)
FSB
4 NOVEMBER 2008
CHAIRMAN: Mr
Cave, welcome to this final part of today's evidence session.
I will not ask you to introduce yourself because we know that
you are the Head of Policy of the Federation of Small Businesses.
We will go straight to questions from Tony Wright.
Q453 MR
WRIGHT: What are the main challenges
facing the small business community?
MR
CAVE: Currently
there are probably four main challenges. There is access to finance,
the cost of finance that our members already have access to, late
payments—which has become an increasing problem—and
what we are seeing now is a contracting market. The FSB has released
a poll today with a series of statistics on each of these areas
that make for troubling reading. 54% of our members are seeing
a reduction in trade over the last two months; 46% of our members
have seen an increase in payment times with customers; 45% have
seen an increase in cost of finance; in addition, 61% have seen
an increase in the cost of existing finance. They are being squeezed
on every front, therefore.
Q454 MR
WRIGHT: Overall, the main criterion
seems to be the question of cash flow and the cost of funding.
MR
CAVE: Exactly.
Q455 MR
WRIGHT: Presumably the views of
the FSB are the same as those of the TUC and the CBI with regard
to bank interest rates: that, when there is a reduction in the
base rate, that should be passed directly on to the businesses.
MR
CAVE: Correct.
That is why we are arguing for a reduction of 1% this week, to
put pressure on the banks to do exactly that.
Q456 MR
WRIGHT: Do you expect the 1%?
MR
CAVE: I do not
know.
Q457 MR
WRIGHT: In reality—
MR
CAVE: In reality,
whatever happens, with the current evidence on the table, I do
not expect that to be passed on to small businesses by the banks.
Q458 MR
WRIGHT: But the message should
really be that, if there is a cut in the base rate, that should
be a direct benefit to business. Otherwise, there is no point
in reducing the base rate.
MR
CAVE: Yes, exactly.
We estimate that there will be £500 million saved by small
businesses in terms of repayments if you reduced interest rates
by 1%, and that is payments on overdrafts and things like that.
Q459 MR
WRIGHT: In terms of small businesses,
in terms of the sectors or their geographical area, there is very
little difference between whether it is the North or the South,
or the Midlands or the South West?
MR
CAVE: It is
interesting because, when we were looking to our members for evidence
of an economic downturn a month or two ago, it was very patchy.
You saw that certain sections of the economy were obviously being
hit; so our members who were involved in construction and in the
food chain of the construction sector were clearly feeling it,
but it was patchy. What we are finding now is that all of our
members are facing problems, largely because of cash flow.
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