Select Committee on European Union Written Evidence

Memorandum from the Confederation of British Industry

  1.  All businesses look to the Government to provide a competitive tax regime, a stable economy, a highly skilled pool of labour and a sound infrastructure. However, growing businesses also look to the Government to provide an environment which encourages and enables them to grow.

  2.  In particular, funding needs to be readily available and affordable. Without access to appropriate finance small businesses will be unable to develop the opportunities for innovation and growth. Ultimately over 40 per cent of GDP in the UK is from the SME sector and future economic growth is dependent on their success. A growth in the availability of risk capital will increase entrepreneurial activity and enable more businesses to fund growth strategies.


  The Small Firms Loan Guarantee Scheme (SFLGS) guarantees loans from the banks and other financial institutions for small firms that have viable business proposals but who have tried and failed to get a conventional loan because of a lack of security.

  Loans are available for periods between two and 10 years on sums up to £250,000.

  The scheme coverage has recently expanded by removing sector exclusions for Retailing, Catering, Coal, Hairdressing and Beauty Parlours, House and Estate Agents, Libraries, Museums and Cultural Activities, Motor Vehicle Repair and Servicing, Steel and Travel Agents. The maximum turnover level for non-manufacturing businesses was also increased from £1.5 million to £3 million.

  The CBI is a strong supporter of the SFLGS. It continues to plug a funding gap for many new and smaller businesses and has successfully facilitated growth and created jobs where no other financing alternative has been available.

  Recently, the CBI has put together a number of recommendations that we believe would further improve the Scheme:

    (i)  increasing the £5 million turnover limit for manufacturers;

    (ii)  changing the maximum loan attributed to an individual from £250,000 over 10 years, to a maximum loan outstanding at any one time of £250,000—which builds the government's efforts in the Enterprise Bill to foster a "serial entrepreneur" culture;

    (iii)  being imaginative in the review of "approved lenders" to include lenders such as those offering invoice discounting who could put together integrated financial solutions.


  In partnership with the European Investment Fund and other private sector investors, the Government has set up funds in each of the nine English Regions to provide venture capital of up to £500,000.

  These funds specialise in the provision of small scale equity to businesses with growth potential. They are intended to increase the provision of equity of smaller amounts to SMEs.

  Although relatively new, the CBI believes that these funds will help to bridge the equity gap often faced by local smaller firms.


  National Business Angels Network (NBAN) is a not-for-profit company, which is sponsored by major financial institutions and supported by the DTI.

  NBAN offers a service sourcing risk capital for small and medium businesses, which is supplied by private investors in return for shares in the business.

  The network helps companies with growth potential looking for capital to grow.


  The Venture Capital Trust scheme started in 1995, and is designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange.

  The trusts have become established as important sources of finance for many growing firms.


  The Phoenix Fund is designed to encourage entrepreneurship in disadvantaged areas. It helps new businesses by providing assistance to business support providers and finance to Community Development Finance Institutions.

  The Phoenix Fund currently includes a development fund to promote innovative ways of supporting enterprise in deprived areas.

  It also provides capital, revenue and loan guarantee support for Community Development Finance Institutions (CDFIs).

  CDFIs create venture capital funds for SMEs in disadvantaged communities.


  The CBI believes that the various products outlined above play an important role in providing smaller growing companies with the finance that they require.

  However, despite the growth of formal and informal venture capital, not all businesses with growth potential can access the risk capital they need.

  This "funding gap" continues to increase in size as traditional venture capital firms look for bigger deals and in the current economic climate Banks are cautious of new funding opportunities.

  The CBI has identified this gap in funding to be for finance within the range of £250,000 to £3 million.


  The UK government wants all adults to have the opportunity to gain a qualification equivalent to five GCSEs (NVQ level 2) and sees a key role for businesses in offering such training or in providing time off for training.

  It is seeking ways of encouraging small businesses to train their staff formally and to provide them with opportunities to gain qualifications.

  Current initiatives being piloted include company learning accounts, regional pilots drawing together business support services and employer training pilots testing the effects of compensating employers for offering time off for training.

  Support for gaining Investors in People is now available for small firms across the country.

  The government must recognise that motivation to train comes from owner-managers recognising its business benefits. Informal learning methods can be more relevant, effective and cost-efficient and so should not be ignored. Help with diagnosing training needs, a one-stop-shop for information on the availability of training and effective support through business networks and mentoring is crucial. High quality, tailored and affordable training must also become the norm for all colleges.


  Raising productivity in the UK is a key aim of the UK Government and management capability is rising up their agenda.

  The UK Government has accepted that informal learning is valuable for managers and that business relevant support is needed, particularly for small firms. But it has not explained how proposals for benchmarking the UK's management and leadership internationally will add value.

  High quality management is essential for a business to maximise its performance. But there are many other factors that combine to influence productivity levels, such as the regulatory environment, workforce skills, transport infrastructure, planning, innovation and macroeconomic stability. National studies of productivity suggest a UK productivity gap, but businesses with plants in the UK and in competitor countries do not find that productivity in the UK is lower.

  The CBI is lobbying the Government to take forward many of the Council for Excellence in Management's (CEML) recommendations, but will seek to ensure that the current focus on management qualifications and on formal uptake of initiatives is replaced with an emphasis on competence.

  The Business Improvement Tool for Entrepreneurs produced by the CEML encourages owner-managers to think about the broader problems their business faces and new ways these could be tackled. This approach coupled with effective information and support is the way forward.

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