With borrowing exceeding GDP for the first time since 1963, more money should be directed to SMEs



It has been announced today that the UK government’s debt exceeded the size of the UK economy in May for the first time in more than 50 years as borrowing surged to pay for coronavirus mitigation measures, official data showed. In a set of public finance statistics that broke many records for the severity of the pandemic on government finances, gross central government debt exceeded £2tr for the first time ever in May. According to the ONS, it rose £200bn over the past year to hit £2.009tr. The data showed the level of public borrowing is on course to end the financial year about £300bn in the red, twice as bad as the worst year in the global financial crisis of 2008-09 and around 15 per cent of national income.

Many economists are not as concerned with the level of borrowing due to the stimulus it should offer the wider economy, there are arguments that more money should be directed towards the country's small and medium-sized businesses. They represent a large part of the job market in the UK which currently employments over 16 million people and, pre-coronavirus, was growing faster than the overall job market. SMEs make up 99.9% of private sector businesses and so supporting entrepreneurs to start businesses as well as providing vital growth finance is clearly of the utmost importance to the overall health of the UK economy.

Luke Davis, CEO of IW Capital and private equity expert, discusses the importance of SME growth to employment and economic recovery and what can be done to help them thrive:

"This amount of borrowing is a large headline figure but many are seeing this as a necessary evil to protect the future growth of the wider economy. However, for all the action the Bank of England and the Government have taken over the past few months, more needs to be done to help the hundreds and thousands small and medium-sized businesses across the country so they can survive and grow over the coming months, supporting the wider market as the backbone of the British economy. 

With an economic contribution of over £2trillion, the success of the UK economy as a whole may in future hinge on the prosperity of SMEs, start-ups and high-growth firms. There is a fantastic range of innovative, growing SMEs that we work with which are likely to drive our private sector forward in the coming years and employ some of the finest talents in the market today. The government should look at other ways to stimulate this market. One way to do this could be to extend the Enterprise Investment Scheme."

The Enterprise Investment Scheme (EIS) is one of the UK Government’s most successful initiatives in terms of driving investment into high-growth early-stage companies. It has helped produce some incredible business successes that otherwise may not have got off the ground due to the reluctance of banks to lend to these firms. Growing SMEs offer huge opportunities in terms of job creation and increasing the tax efficiencies of EIS is a certain way to increase investment into these firms, offering a part of the solution to economic problems.

When the EIS income tax relief was extended from 20% to 30% in 2011, the amount invested in small companies through the scheme saw a tremendous jump. If the Government were to extend the scope or tax efficiencies of the scheme again, it could really help catalyse private investment – a crucial source of growth finance."

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