As the bells chime in a new year, for many of the country’s smaller businesses 2016 brings both huge possibilities and some inevitable challenges. While growth prospects appear on the horizon, so does the tangling of red tape that could threaten to derail business confidence and economic performance.
For businesses and advisers, keeping that confidence on track is critical to keeping the UK moving forward. But wobbles are already being felt through new legislation set by the Conservative government, sector-specific regulation and an unstable economic picture thanks to the potential of the UK leaving the EU. For those of us working with smaller businesses, it is clear that we need to come together to shore up that confidence and help drive economic growth forward.
One of the great unknowns for businesses putting together their plans for 2016 is the impact that the government’s commitment to create a ‘devolution revolution’ will really have. The devolution of power in the UK is a key opportunity to create thriving local environments that could help stimulate business growth, but councils may approach working with smaller businesses differently and we may start to see a huge regional variance in how SMEs benefit.
Business rates are one of the biggest costs our SMEs face and their payment forms a critical part of financial planning. Plans to allow local councils to set business rates introduce a certain level of uncertainty for smaller businesses, as levels may vary from region to region. Businesses have long campaigned for more lenient rates rather than higher charges, and through devolution we may see the penalising of some businesses whose location choice suddenly challenges their bottom line. For advisers and financiers alike, working closely with businesses and influencers in the local area should help drive a fairer deal for all.
Businesses also have to contend with sector-specific regulation – something we know all about. As a challenger bank, capital requirements are higher for standardised banks than for internal ratings-based banks as they are based on different models. The challenger bank model means those striving for positive change in the sector must hold more capital against their loan book than the bigger players. This imbalance in approach is frustrating, as it impedes effective competition and has a distorting effect on the business mix of challenger banks. Implementing a more proportionate and balanced capital model would enable us to provide more support to businesses, helping them to grow and in turn drive the economy forward.
Against this backdrop of regulation, there is also considerable economic instability for businesses thanks to the potential exit from the EU, which we know has a direct impact on how many companies invest in future growth. Earlier this year we commissioned research revealed that UK SMEs have built up their cash reserves, driven by the perceived need for greater ‘cash buffers’ and concerns about the volatility of the economy, with SMEs holding more than £230,000 on average in current accounts. The government is keen to see more capital investment – we are well placed to help them – yet to get that investment over the line, commitment to economic stability is critical.