SME's as Political Footballs

SMEs - At the Centre of Governing Policy, or just a Political Football?

With growth stalling, high street sales falling and consumer confidence at a low, businesses must rise to the challenge if they want to secure their future. This is especially true for small and micro-firms, who may be less well established, have less in reserve or do not have the business experience to ride out an economic downturn.

Against this backdrop, small and medium enterprises (SMEs) and the issues that affect them continue to be a policy battleground for politicians. This shouldn't be a surprise; according to the Federation of Small Businesses (FSB), SMEs contribute more than half of the UK's gross domestic product (GDP).

Why Politicians Care so Much About SMEs

There's no doubt that small business owners will have a large say in the outcome of the next election, as Marc Shoffman of the FSB explains: "Small businesses employ around 13.5 million people. That is a large amount of the workforce and the electorate that will be affected by employment and fiscal policy."

Phil McCabe, from the Forum of Private Business (FPB) agrees. He says: "Given the financial turmoil of the past year, and the increasing wrangling between political parties on how best to negotiate these testing times, it is becoming more apparent that the economy will be the major issue that will decide the next general election."

But while many words are exchanged over SMEs, how do the main parties differ, and what do small firms actually need from our government?

Labour's Policies for Small Businesses

Gordon Brown became prime minister in June 2007. He also set fiscal policy for 10 years prior to becoming prime minister and was therefore a key player in the economic development of the UK. But Brown must call the next general election in 2009 or 2010, and his manifesto may include new legislation or policies on business and the economy.

Labour's website points to achievements since the party's 1997 election victory, including

• A 430,000 rise in VAT-registered firms.
• The creation of Business Link, which the party says will benefit 800,000 businesses in 2008.
• By 2009 there will be an "almost 20%" reduction in the administrative burden on business according to Labour.

The Government's policies have, of course, attracted both criticism and approval. Less popular was the move to abolish taper relief on capital gains tax (CGT) mooted by Chancellor Alistair Darling in his December 2007 pre-Budget report - widely seen by business groups as an unfair grab at the profit an individual might make from selling a small firm. The chancellor was apparently pressured into announcing Entrepreneur's Relief early in 2008.

However, the Labour decision to give the Bank of England autonomy over interest rates in May 1997 was more popular. And the British Chambers of Commerce has been a vocal supporter of the Carbon Trust, established by the Government in 2001 to help businesses address climate change.

But while we have a Labour government today, we may not do in a year or two's time. The UK's opposition parties all say that they're supportive of small, local businesses.

Conservative Policies for Small Businesses

The Conservatives are yet to unveil the details of the manifesto on which they'll fight their first election under David Cameron*, but they promise to:

• Cut corporation tax.
• Reduce regulation and simplify employment law.
• Improve the advice and information given to 'young' businesses.
• Reform the Regional Development Agencies.

Liberal Democrat Policies for Small Businesses

The Liberal Democrats say that they would "take the tough decisions necessary to stabilise the UK economy". Their economic policies include:

• Reforming the business rates system and returning rates to local control
• Simplifying and reforming corporation tax so that small businesses pay based on their operating cashflow, rather than accounting profits
• Scrapping the department for Business, Enterprise and Regulatory Reform (BERR - created in 2007) in an effort to reduce red tape and "the stifling control of Whitehall".

It's also worth noting that a Lib Dem government would abolish CGT taper relief.

Green Party Policies for Small Businesses

We're unlikely to see a Green government after the next election, but environmental issues are a key political battleground. The Greens are strong supporters of small, local businesses, and their policies include:

• Scrapping VAT and National Insurance, incorporating the latter into income tax
• Relaxing planning laws for small firms
• Creating local community banks to support local firms
• Helping green and rural start-ups
• Outlawing late payment

Business Speak

As we enter recession, small businesses will continue to look to the Government to address the issues most likely to trip them up. As Shoffman explains: "The biggest issues affecting SMEs are poor access to finance and the peril of late payments."

In October, the prime minister and chancellor announced a massive programme of support for the banking industry but, according to Shoffman, it may not yet have been effective.

"A recent FSB poll showed that one in three small businesses have had trouble with their bank recently, either with hiked-up overdraft rates or refusal of new credit or credit extensions.

"This goes against promises made by the banks as part of the Government bailout."

To succeed in any upcoming election, a would-be government needs to convince both the population at large and the owners of small businesses that it understands their interests and challenges, and that it has the policies to reflect that.

"Politicians need to show that they can think small first," Marc Shoffman says. "This is relevant in most policies such as legislation on the environment, local government, tax, employment law and education. Small businesses are often weighed down by rigid regulation whereas they usually thrive on flexibility."

According to McCabe, the FPB has been lobbying for exactly this kind of support. He says: " "The full impact of the economic crisis is, as yet, unknown.* During a series of meetings with ministers, FPB representatives have argued for measures to be introduced that would help to bolster small firms' lifeblood - cash flow.

"That includes pressuring the banks to lend responsibly, promoting proposals to ease VAT payments, minimising the threat of late payment and campaigning for a reduction in excessive tax and red tape. The FPB is determined that the concerns of its members are continually brought home to politicians in this way."

Whoever wins the next election, it seems that flexibility might be the key for leading small firms through dark days. By responding quickly and sympathetically to the real needs of business, Government can keep them onside.

[* Time of publication by Coverzones, November 2008]