The Chancellor of the Exchequer, George Osborne’s Autumn Statement offers little short term cheer for the economy as a whole. With the OECD predicting sluggish growth and rising unemployment in 2012, many economists are warning of the prospect of a double-dip recession. Mr Osborne, as expected, insists that sticking to the deficit reduction programme remains the government’s priority. However measures announced to help small and medium sized businesses may be good news for commercial property.
The Autumn Statement, which sets out the Treasury’s forecasts for growth and spending, includes a credit easing strategy designed to improve business confidence and encourage investment and growth. The proposals contain three main planks. First and foremost the government plans to guarantee £20 billion, meaning banks would then be free to raise on the currency markets. This would then be made available as loans to small businesses with turnovers of less than £50 million including many with offices, industrial units and retail commercial property across the UK.
Secondly the government and private investors will establish a separate fund, which they will both contribute money to, allowing medium sized businesses access to loans. The third part of the strategy involves assisting companies to raise money on the stock market. Mr Osborne has been quick to promote the benefits of his proposals telling the Andrew Marr Show: “The basic idea of this national loan guarantee scheme is to use the fact that the government can borrow money very cheaply to help small businesses to borrow more cheaply than they do at the moment.”
In practice this would allow a business hoping to take out a £5 million loan to open new commercial property to borrow at 4% instead of the current 5%. This represents an interest reduction of £50,000 per year, a significant saving for small businesses. This, the Chancellor explains, will assist firms with their cash flow, help them to retain their workforces and give them the confidence to expand and invest. He has also announced plans to help with new start-ups and extended business rate relief for small companies.
Mr Osborne is keen to stress that the proposals, which he hopes will come into effect early next year, won’t add to Britain’s budget deficit and this has led commentators and opposition MPs to question where the money will come from. There is speculation that the Chancellor may have to raid pension funds to pay for his announcements. There is also concern that credit easing alone will do little to boost business confidence because it will have no effect on consumer demand.
Labour’s business spokesman Chuka Umunna and Shadow Chancellor, Ed Balls have sent a joint letter to Mr Osborne expressing their concerns. In addition shadow treasury minister Chris Leslie has told the Telegraph that the proposals are proof that the government’s current scheme to help small businesses. Project Merlin, has failed to deliver the promised growth. He says that Labour will this week be demanding the answers to 15 questions relating to the credit easing scheme. Despite Labour’s doubts, the announcement has been welcomed by small business leaders who have seen a worrying number of commercial property closures on the high street during 2011 as a result of the credit crunch.
