By Warren Mead, CEO of Sumer
The recent election has come and gone, and yet the issues that matter most to SMEs were largely absent from debates. Given their role as a stabilising force in the economy, I was surprised to see such a lack of attention paid to a community that’s often considered the ‘backbone’ of British business.
This omission left many SMEs feeling the results would have ‘little impact’ on their prospects. According to fintech company SumUp, more than a quarter (27%) of small business owners and decision-makers felt neutral on the election.
However, as the dust settles, it’s obvious the new Government must prioritise the economic health of SMEs by addressing the elephant in the room – the issue of high interest rates.
For entrepreneurs and small business owners, neglecting this vital topic is troubling. After all, they account for three-fifths of the employment population and around half of the turnover in the UK private sector. SMEs spark innovation, drive new business ideas and influence the stability of our economy. We should empower their needs, not ignore them.
What SMEs need to prosper
It sounds simple. SMEs need clear plans that offer a predictable business environment. Improving knowledge and access to capital is essential, as high interest rates currently prevent further growth opportunities. By providing SMEs with the necessary financial support, we can ensure they know how to grow and contribute to their business, and our economy.
Although we have to wait until the 1st August to see if the Bank of England (BoE) switches gears, BoE base rates are making it difficult for many SMEs to secure affordable loans. This is an area hindering their ability to grow and innovate. It’s an oversight that needs care and attention.
Why do we need to take a firm stance?
It isn’t just policy that’s important—as the infamous Logan Roy from Succession would say ‘it’s all about the optics’. If people have confidence in the country, then investment becomes more attractive.
It is essential to tackle the root causes of inflation without relying solely on interest rate hikes. High interest rates don’t address underlying issues like geopolitical conflicts, climate change, and Brexit’s ongoing impacts, but lowering them would help SMEs on the ground. A more nuanced approach is needed to ensure that inflation control measures do not come at the expense of economic growth and business development.
This has created a pervasive scepticism about politicians’ ability to deliver on their promises and effectively implement business-friendly policies. This uncertainty stifles business growth and dampens the entrepreneurial spirit essential to our economic vitality. Avoiding a crisis of competence is crucial, as failing to do so can only make things worse – and deter wider investment.
But, there is always an opportunity for change. This year, we have not only emerged from a recession but also surpassed India to become the third-largest venture capital (VC) market in the world. The UK now accounts for 6% of global investment. This positive momentum offers a strong foundation for further success, ready for a renewed focus on supporting SMEs.
What should be done?
Aside from bringing interest rates down, I’d like to see Sir Keir and his team commit to creating stable, long-term economic policies that provide a predictable environment for businesses to thrive. This stability is crucial for fostering a positive business climate and encouraging investment.
Existing business tax policy is particularly unfair and ripe for reform, SMEs are currently the biggest losers and pay the same rates as bigger fish regardless of profitability. You can have two identical businesses: one makes £100,000 profit, and the other makes a £100,000 loss. But if they have the same shop or factory, they’ll pay the same rates. This can impact growth planning, for entrepreneurs and their related businesses.
The government should also invest in infrastructure, education, and technology to benefit SMEs, providing grants and incentives for innovation and growth. Labour’s proposed replacement for the business rates system, as outlined in its manifesto, is a positive step welcomed by many retailers and small business owners. Although details are pending, it is encouraging that Labour recognises the need to modernise our outdated business rates for a fairer tax environment.
On a cultural level, advocacy for inclusive growth across the UK and Ireland is also crucial. Business leaders, entrepreneurs, and concerned citizens should actively engage with their representatives and participate in local business organisations to champion policies that support diverse and underrepresented communities, such as female-led businesses and LGBTQIA+.
Moving forward…
Supporting SMEs is about more than just economic metrics; it’s about fostering a vibrant and diverse business landscape that benefits society as a whole. SMEs are the beating heart of our economy and by reducing interest rates and providing a stable policy environment, we can unleash their full potential, leading to a more dynamic and inclusive economy.
The social benefits are just as compelling. Thriving SMEs contribute massively to community development, providing local employment opportunities and stimulating economic activity in all corners of the country, ensuring that communities are less vulnerable to economic shocks and disruptions.
Our Government has an important opportunity to make its mark on UK business and I believe that lowering interest rates for SMEs should be their first port of call. This move will provide much-needed access to capital, ensure long-term growth and make the UK attractive to investors.
As we look to the near future, it’s essential to remember that the success of SMEs is inextricably linked to the health of our economy. By supporting these businesses, we are investing in a brighter, more prosperous future for everyone.
