The British Business Bank should be readied to replicate the current role of the European Investment Bank (EIB) and European Investment Fund (EIF) in supporting small business finance markets once the UK has left the EU, according to the Federation of Small Businesses (FSB) Brexit in a new report.
Under FSB’s new proposals, the British Business Bank would receive extra resources to promote access to finance for small firms, helping to support regional economic growth across the UK.
Mike Cherry, FSB National Chairman, said: “European investment in finance markets has been a crucial lifeline for small firms across the UK. Both the EIB and EIF have helped develop commercial expertise and improved access to finance in less economically developed regions of the country.
“EIF funds are particularly important for firms aspiring to grow, assisting businesses looking to expand moderately as well as those seeking to scale-up. Ensuring this vital investment activity is replicated post-Brexit should be a key dimension of the next Government’s Industrial Strategy. If the new administration is serious about developing an Industrial Strategy that promotes growth and productivity in all areas of the country, it must ensure our small businesses have the resources they need to invest, expand and scale-up.
“Failure to do so risks sluggish productivity, fewer jobs and business closures. The £400m boost for the BBB’s support of finance markets unveiled in last year’s Autumn Statement was welcome, but the BBB will need further resources if we’re to see an improvement in the ability of small businesses to access finance.”
The new report highlights how the large number of different UK finance schemes poses the risk of duplicated provision and ineffective targeting. The membership body recommends that an expanded BBB works with the Treasury to comprehensively map the finance offerings currently available to UK small firms.
FSB also urges the new Government to introduce legislation requiring all finance providers to publish lending data at a regional level on a mandatory basis, making it easier to identify market gaps. According to the proposals, this work should be complemented by a new BBB unit dedicated to developing the commercial expertise of publicly-backed funds and monitoring their success.
Mike Cherry continued: “You can’t manage what you can’t measure. The BBB is already doing great work in promoting access to finance up and down the UK, what we now need to see is improved analysis of where gaps in the market still exist.”
FSB warns that EU passporting rights for the UK’s private equity and venture capital industries must remain in place as part of a post-Brexit transitional arrangement to protect small firms from an access to finance cliff edge.
Following a transitional phase, FSB is calling for UK financial services to obtain regulatory equivalence status or mutual recognition from the EU. The City’s private equity and venture capital markets are vital to small business growth, facilitating £27 billion of investment in UK firms throughout 2015 alone, £6.1 billion of which originated in EU countries. The vast majority (84%) of this investment was in smaller businesses1.
Mike Cherry added: “Without a transitional arrangement that allows European investors to continue supporting our small businesses the UK economy is in for a real shock. It’s incumbent on Brexit negotiators to preserve the ability of small firms to access finance.”