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Banks (Finance)

Labour Party's Support for Small-Business Development Bank Gains Momentum

Strategic Insights

— 2 min read

The Labour Party's proposal for a government-backed small-business development bank has gained significant traction, with its backing for the idea surfacing earlier in the year. This innovative approach to small business banking could play a crucial role in reducing unemployment and halting the decline in the number of people in work. The proposal has set Labour's policies apart from those of the Government, which has consistently opposed the establishment of such an institution. A variation of this concept has already been implemented by Scottish Enterprise, Scotland's development agency, which has partnered with major Scottish banks to provide capped-interest loans to small firms.

Key Takeaways:

  • The Labour Party's proposal for a government-backed small-business development bank has gained significant support, with the Scottish Enterprise's model being cited as a potential template.
  • The Union of Independent Companies, a lobby group representing manufacturing firms, has expressed concerns that the proposed bank may not address their specific needs, particularly in terms of long-term, patent development funding.
  • Small business owners in Britain have ranked access to finance as the seventh-highest problem, with only 3.6% of respondents citing it as a major concern.
  • The recent Economic and Social Research Council's four-year research initiative found no significant evidence of gaps in financing for small firms, but suggested that state-backed development finance banks could fill this gap.
  • Dr. Andy Mullineux's research for the Anglo-German Foundation emphasized the importance of "relationship banking" and the need for longer-term loans to foster such relationships.
  • The Islamic banking principle of profit and loss sharing could serve as a model for developing loan contracts that mitigate risk and provide incentives for good management.

Statistics:

  • 3.6% of small business owners in Britain cited access to finance as a problem in the latest quarterly survey by the Small Business Research Trust.
  • The proportion of firms citing access to finance rises with firm size, reaching 6% for businesses employing 50 or more people.
  • 75% of small business owners ranked lack of business and cash flow as their top two problems, indicating caution in taking on debt for investment.
  • 25 regionally based loan guarantee associations and development banks sponsored by regional governments comprise the complex system through which the German KfW and DtA operate.
  • £5: the cost of the Anglo-German Foundation's book on small and medium-sized enterprise financing in the UK: lessons from Germany.

Sources:

  • The Guardian's Mittelstand conference speech by Stephen Dorrell, Financial Secretary to the Treasury.
  • The Confederation of British Industry's statement on the proposal.
  • Small Business Research Trust's quarterly survey of small firms in Britain.
  • Economic and Social Research Council's four-year research initiative on small business financing.
  • Anglo-German Foundation's book on small and medium-sized enterprise financing in the UK: lessons from Germany.
  • Union of Independent Companies' statement on the proposed bank.
  • Dr. Andy Mullineux's research for the Anglo-German Foundation.

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