As the government announces new support packages aimed at SMEs, M Institute co-founder and chairman Paul Druckman asks if these packages are really addressing the challenges facing medium enterprise in the UK.
M Institute welcomes the business support packages announced by Peter Mandelson, the Secretary of State for Business, Enterprise and Regulatory Reform (BERR). The packages, aimed at the SME sector (small and micro enterprise), actually do raise the game to include many medium enterprises, after much lobbying over an extended period of time by M Institute.
Mandelson’s announcement has three schemes on offer which use company turnover as the qualification criterion. By focusing on size, the government is clearly still not fully embracing M Institute’s characteristics model. However, the size definitions used in the packages show that they are bringing more medium enterprises into their thinking:
• Enterprise Finance Guarantee: “..businesses with a turnover of up to £25million..”
• Working Capital Scheme: “..all firms of turnover of up to £500m..”
• Capital for Enterprise Fund: “..turnover of up to €50 million..”
At M Institute, we were asked by BERR to send out the following message to our significant base of medium enterprise stakeholders: “On Wednesday 14 January, Government launched a package of support to address the cash flow, credit and capital needs of businesses. Information on this support can be accessed via a dedicated web portal at www.businesslink.gov.uk/realhelp.”
My own thoughts are that these initiatives are good news and that Mandelson is trying hard to assist and support business through the unique challenges that the current economic crisis presents. Whether this will be successfully translated by the banks in the UK is another question. However, these are perhaps the first support initiatives aimed at individual companies that have included medium enterprises, rather than focus on small and micro companies (SMEs).
Medium business does not look to government during the ordinary cycle of business for individual support, and government, through the Business Links network, has very little to offer to such businesses. Medium enterprise looks for macro level stimuli to the economy, with transport infrastructure, and skills development of graduates as key examples. However, in this crisis, we do need support and practical assistance, and I do believe that this is what BERR, through the leadership of Mandelson, is trying to achieve.
On one of the previous initiatives, namely the infamous VAT reduction, I have to say that its effect has been so minimal that one can only assume it was a political play at spinning some action from government – expensive to UK plc in implementing it, but not at all effective. Frankly, it’s been a daft idea!
There are exceptions of course. For example, entities that cannot reclaim VAT on purchases have seen a reduction in real costs, such as in an insurance brokerage. Here outputs are not under the VAT regime and so even the VAT increment of 17.5% to inputs are a real cost. A reduction of VAT to 15% does actually give a reduction of costs, mainly in overheads but nonetheless useful. However, this is but a by-product of the VAT change and, I am convinced, was not the real purpose of the initiative.
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