Bank of England highlights pressure on High Street and SMEs
The Bank of England’s monthly Agents’ Summary of Business Conditions for August, released today, stresses the difficulties facing high street retailers and banks’ failure to lend to small businesses on reasonable terms.
According to the report, for many stores discounting is required to drive sales with many retailers “reporting that promotions were now used almost all year round”, and that high streets are “losing ground to destination shopping centres, discount stores and the internet”.
Most stores began summer sales early “with discounts deeper and across a wider range of goods than usual”, the report said.
Last month, Labour launched a campaign to save Britain’s high streets, demanding urgent action to help retailers, protect jobs and give people a real say over their local high street including a temporary VAT cut from 20% to 17.5% to give struggling retailers a boost.
In government, Labour enacted a temporary cut in VAT from 17.5% to 15% in November 2008 – this reduced the tax liability for both businesses and households by around £11bn and increased GDP by 0.5 per cent. According to the Centre for Economics and Business Research, the temporary VAT cut boosted sales by between £8 and £9 billion.
The Summary of Business conditions also highlights the continuing difficulties which small businesses face in accessing finance: “small companies, with weak cash flow or relatively little collateral, still found borrowing terms prohibitive”. This follows the most recent statistics on the government’s Project Merlin agreement, with the five banks covered by the deal missing their target for lending to SMEs by £600m in the second quarter of 2011.
Minutes of the Bank of England’s August Monetary Policy Committee August meeting, also published today, confirm that “indicators of the cost of bank credit to smaller businesses remained elevated and the supply of credit to them was still restricted”.
Commenting, Shadow Minister for Small Business and Enterprise Chuka Umunna MP said:
“The Bank of England’s latest Agents’ Summary of Business Conditions highlights the need for urgent action to help High Street retailers, who have been hit by the government’s VAT hike, falling consumer confidence and the squeeze on family incomes. A temporary cut in VAT would help consumers and businesses now and would help us get the deficit down.
“It is clear that small businesses are continuing to struggle in securing finance on reasonable terms. The government is failing to get the banks to lend to small businesses and in Project Merlin negotiated a flawed agreement which lacks teeth.
“The Managing Director of the IMF, Christine Lagarde, is right to say that ‘slamming on the brakes too quickly will hurt the recovery and worsen job prospects’. The evidence for George Osborne’s claim that Britain is a safe haven has collapsed – that is why the Chancellor should take heed of the IMF’s latest advice.”
