TALKING POINTS

Boris Johnson wants to level with us. Sounds unlikely right?! But in this instance, the levelling he's doing is levelling up. On 15 July, Boris gave his levelling up speech designed to create a “strong and dynamic wealth creating economy”. Levelling up centres on closing the gap on regional disparities in the UK and one of the central issues is the differences in productivity between regions - that's the amount of gross value added (GVA) per hour worked. By this measure, it is clear places such as Wales, Yorkshire and Northern Ireland lag badly behind London and the South East. One of the factors cited as having caused this productivity gap is that government and universities spend more on research and development in the south-east of England.

As an industry that works closely with SMEs, we know that they are net contributors to both research and development as well as productivity and it's no coincidence that those areas of the UK that have a strong and vibrant startup community are also those that are highly productive. So how can the UK expand this model and what role can SMEs play in creating Boris's “strong and dynamic wealth creating economy”?

These thoughts are echoed by the British Business Bank who have recently commissioned an Access to Finance study to the current landscape of SME finance in the UK. The report makes for interesting reading and can be read in full here - access-to-finance-national-spotlight.pdf (british-business-bank.co.uk) this article looks at some of the main findings.

Firstly, the report tells us that “Start-ups have increased in number in 2020 and demand (for finance) among start-ups was thought to be high. Similarly, respondents felt demand was high among scale-ups, who would be looking to expand and grow as they move out of the pandemic”. 

Clearly the Covid pandemic has helped drive this demand and overall, the Government debt and loan structures implemented during the pandemic have been very adequate in keeping companies afloat. Banks handed out more than £75 billion to more than a million companies under a number of emergency support schemes set up by the Government but are now beginning to call those loans in and The National Audit Office now estimates that between 35% and 60% of borrowers might default on their loans. Debt has played a big part in helping companies survive but in order to drive companies forward, equity needs to play an increasingly important part. In short, equity funding is a driver of scaleup growth, while debt is not. 

The report also identified that early-stage equity (64%) and growth stage equity (51%) were the types of finance respondents were most likely to identify as having funding gaps and the main reason for this was risk aversion amongst high street banks. 27 years ago, EIS was introduced with the specific intention of filling the gap where banks dared not to fund and the scheme has done an admirable job in closing that gap but since then demand has grown at a rate bigger than supply (under the current rules) can handle so the funding gap has resurfaced. This presents EIS with an opportunity to expand further and harness the good reputation it has built so we implore the Government to take note and expand the schemes reach. As our report last year identified, 97% (121 out of 125) of the surveyed companies agreed that EIS/SEIS investments were important for the growth and development of their company. Multiply these numbers by increasing SEIS and EIS limits and the net overall effect to the UK economy would be significant.

Levelling up is clearly a key Government strategy going forward so we will hear lots more about it over the next few months and years. Access to finance should be a key part of levelling up and we hope to hear more from the Government soon about their plans in this important area.