Wednesday 8th Feb 2017
Theresa May’s long-awaited industrial strategy met with a lukewarm reception when it was unveiled last month. In an effort to strengthen business confidence while appealing to a broader audience, the prime minister said the strategy aimed to ‘deliver a stronger economy and a fairer society – where wealth and opportunity are spread across every community’.
But for all the feel-good rhetoric, commentators and industrial experts complained the plan lacked any real substance. While I agree there’s room for improvement, on closer inspection I also believe there’s reason for optimism – particularly for small and medium-sized companies.
One section in particular, titled ‘Supporting businesses to start and grow’, stresses the importance of making sure businesses across Britain have access to business finance solutions to suit their needs. If small businesses are to keep contributing to the UK economy, the government said, barriers to funding need to be addressed.
This was heartening to see. SMEs are the backbone of the UK economy, accounting for 60 per cent of private sector employment – around 16 million people. A report last week found that medium-sized firms generated more profit and created more jobs (78,000) over the past year than their larger counterparts. Manufacturing – part of our DNA at Hitachi Capital – is more competitive than ever. If we’re going to make Brexit a success, we need these businesses to continue to grow.
It’s not surprising that business confidence is high on the government’s agenda. As our own research with the CEBR found last year, a third of British businesses abandoned planned investments in the wake of the Brexit vote – including 23 per cent of small businesses and 44 per cent of medium-sized firms. While some caution is understandable, now that the government’s plan for Brexit is taking shape we can afford to be bolder.
It is now clear that we will be leaving both the single market and the customs union. While many are nervous about this, it’s important that we keep reminding ourselves that membership of and access to the single market are not the same thing. We can continue to operate in the EU while at the same time establishing ourselves in growth markets outside it. As the European Commission itself has estimated, 90 per cent of world demand over the next 10–15 years will be generated outside Europe.
Unleashing small business growth
There are real barriers to overcome if Britain’s SMEs are to be part of this, however. One is the threshold for business rate relief, which needs to rise to benefit more small companies. Another is the difficulty faced by businesses in scaling up – in particular the challenge of accessing long-term funding.
In my view the industrial strategy should have gone further on the issue of flexible financing. As a finance provider, I know first-hand how important it is for small businesses to have access to reliable, tailored funding solutions at the right time.
We need to do more to raise awareness of options beyond bank overdrafts and develop modern, diverse funding models. Asset finance, for example, which is still significantly underused by SMEs in the UK, is often an ideal way for a business to purchase assets without eating into valuable working capital, with the option to upgrade as better technology becomes available.
Nowhere is this more evident than in manufacturing. Hitachi Capital UK started out 30 years ago in support of Hitachi’s UK businesses. Our finance business grew from there, and today we provide a complete range of personal, business and vehicle finance solutions to more than 1 million customers.
UK manufacturing has seen enormous changes since those early days, and we understand the need to move with the times. In today’s environment, agility is the order of the day. That’s why we’ve just launched a simple online solution for SMEs to access asset finance up to £500,000.
Renewed support for our SMEs is crucial if the UK is to thrive outside the EU and we should welcome these early signs that the government recognises this. But that signal was overdue and more needs to be done – in particular to raise awareness of alternative finance and to modernise funding models to allow for faster, more bespoke solutions. That’s the only way we’ll unleash the full potential of this vital part of our economy.
Backing small businesses
- SMEs account for 60% of private sector employment
- Medium-sized businesses created more jobs over last year than large companies.