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State SME lending policy draws more criticism

Attention may be focused on the euro crisis, but just as important is growing evidence that suggests the government’s small business banking policy is falling short. Two new reports have added to the rising doubt over state SME lending strategy, and support has grown for a VAT cut.
The Federation of Small Businesses has called on the government to hand SMEs some urgent help by cutting the 20% VAT level. The federation points towards falling confidence among SMEs in the second quarter of the year and the example of other EU countries, which have reduced tax levels for specific sectors, as reasons to make such a move. The increase in VAT was widely supported at the time, but economic conditions have led to a notable change in opinion.
Another recent survey, from the British Bankers Association Taskforce, underlines the fall in confidence. According to the body, it is the businesses at the smaller end of the SME scale that are finding conditions the most challenging with regard to business banking. Tellingly, its figures showed that more than half of these firms had not applied for a loan in the last 12 months because they expected to be turned down. These findings echo those of the recent BDRC Continental survey.
It seems clear that SMEs need more help, whether it’s a cut in VAT, further revision of bank lending policy or a reduction in red tape. Businesses can be proactive, for example by using invoice discounting and factoring or asset finance, but some state stimulus is required. Will we see a cut in VAT? As it was the shadow chancellor who raised the argument in June, it would be a u-turn the government is unlikely to want to make.
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