November 2012

Business investment up in third quarter

According to official figures, investment into British businesses rose by £1.1bn in the third quarter of 2012. The ONS say total investment in seasonally adjusted terms rose 3.7% to £31.3bn when compared to the previous quarter of 2012.

Investment into non-manufacturing companies was the best performer, with growth by 4% to £28.1bn.

Investment into manufacturing businesses grew by 1.4% in their operations to £3.2bn. However, total manufacturing investment fell by £200m when compared to the third quarter of 2011.

Nationwide to start SME lending in 2014

Nationwide, the UK’s largest mutual building society has confirmed that plans are “progressing well” for them to enter the small business lending market. They also revealed that Nationwide is to start lending to SMEs in 2014.

Nationwide posted total underlying income of more than £1bn in the first 6 months of its financial year, up from £990m for the corresponding period last year. However, underlying pre-tax profit has fallen from £181m in 2011 to £151m in 2012 – Nationwide say their profits have been impacted by losses of £193m on its commercial property lending during the period.

The sustained high level of PPI Claims are also said to have had an effect on their profits. Nationwide say that 42% of claims received have been in cases where PPI was not sold, with 72% of these invalid claims being submitted by claims management companies.

£150m training and skills fund

This week saw the announcement of a new £150m pot of money for UK businesses to fund training schemes. It was announced that the second round of funding has now been made available and is open to bids through the Employment Ownership Pilot. This pilot scheme, which is run jointly by the Department for Business, Innovation and Skills and the Department for Education, has been assigned a total government investment of £250m.

Under the scheme businesses will be able to use the fund to train employees and develop the skills of their existing workforce. Projects such as skills training for local suppliers and apprenticeships, as well as specifically targeted at female workers were made possible by this funding.

The first round of funding, which took place earlier this year, saw firms such as Whitbread and Nissan benefit from a share of £70m.

The skills minister also recently announced a new partnership with Channel 4 and the BBC, amongst others, which will aim to develop work placements, internships, training and apprenticeships within the production and technology sectors.

Government’s new £40m Enterprise Capital Fund sends positive signals to science and technology SMEs

The 12th to be created, the latest addition to the government-backed Enterprise Capital Fund (ECF) portfolio is a £40m pot dedicated to supporting small and medium sized enterprises in the science, technology and engineering sectors. Companies may receive up to £2m in an investment round.

The fund will be run by Longwall Ventures, under the supervision of Capital for Enterprise, the company entrusted by the government to coordinate the ECF allocation. £25m will come from government coffers, with the remaining £15m supplied by private investors.

This step comes amid excited speculation about the potential for startups in this field to reboot the UK’s economy, supported by recent research from the Centre for Economics and Business Research claiming the focus is shifting from financial services to technology.

Santander to launch £500m funding package

Santander has announced that it will attempt to alleviate the cash-flow woes of small and medium-sized enterprises with the launch of a £500m funding package.

The new financing activities will be funded through the government’s Funding for Lending (FL) scheme. This aims to boost lending by allowing banks and building societies to borrow from the Bank of England up to 5% of the total aggregate amount they have lent out to the UK non-financial sector – hence the more they lend out, the more in turn they are themselves allowed to borrow from the BoE. However, the potency of FL has been undermined, amongst other reasons, by the failure of banks to lend to new customers, a condition not imposed by the scheme.

Santander alleges the scheme has allowed it to reduce business lending rates, though businesses owners in general remain sceptical of the practical results of FL.

Another scheme announced by Santander is supply-chain finance, which allows suppliers to collect an advance when its big clients inform a bank that the invoice has been approved. In 2013, Santander will provide £500m to companies aiming to use credit or leasing facilities as a source of finance for purchasing business assets.

Recent positive economic data may not be a good guide to the future

Sir Mervyn King presented the Bank of England’s quarterly Inflation Report today. It halved its 2013 forecast for the UK’s economic growth to 1% from its previously predicted 2% target.

The report also said the UK could be stuck in a low-growth environment following economic problems in the eurozone continuing to have an impact domestically. Other factors, such as the unseasonably bad weather during the summer also led to a fluctuating picture from quarter to quarter.

Similarly, growth from July to September was boosted by one-off factors including ticket revenue from the Olympics and Paralympics and gave a perhaps overly optimistic impression of the underlying trend.

Google, Amazon and Starbucks face questions on tax avoidance

In the wake of government cuts and previous investigations into corporation tax paid by large corporations, global firms are coming under increasing scrutiny for paying little or no corporation tax in the UK. 

Three international corporations, Starbucks, Google and Amazon, will face questions from MPs over tax avoidance today, over their decision to base their European businesses outside the UK to avoid paying full UK corporation tax.

A recent report published by Reuters highlighted how Starbucks paid £8.6m in taxes over 14 years, Google paid £3.4m in 2011 and Amazon paid less than £1m in the same year.

Angel Investment in Scotland up 26%

According to new figures, Scottish early-stage businesses raised over £15.6m through Angel Investment during the first three quarters of 2012. The corresponding period last year saw Angel Investment of £12.4m.

This large increase equates to a 26% uplift from Scottish angel syndicates for new and existing companies in their portfolios compared to the same period in 2011.

In addition to this increase in the amount invested by Scottish Angels, the number of businesses supported by Angel Investment in Scotland has also risen by 13% in the first three quarters of 2012, when compared to the corresponding period in 2011.

ING withdrawal threatens vehicle funding

ING has decided to close Surrey-based ING Lease UK, which has been injecting £1bn per year into the British economy.

With the current economic climate, businesses have been turning to leasing contract for vehicle purchases, as banks have tightened up their risk appetite. The closing of ING Lease UK will instantly remove 40% of this money!

This withdrawal from leasing shows how European Banks are being urged to slash certain activities in order to fulfill new rules forcing Banks to hold more capital in reserve.

This year, 31% of all investment in new equipment and machinery has been done through leasing arrangements – the closure of ING is likely to cause disruption for several months!

However, ING specialized in leasing equipment to small businesses and farms, so it is these customers that are likely to feel the brunt of the disruption in accessing this type of finance.

Britain's smaller companies buckle under pressure

Britain’s SMEs are in need of help after being ravaged by weak demand, lack of funding, and late payment.

Smaller manufacturers struggled this quarter as orders for goods plummeted both home and abroad. Production fell over the same period, as margins are being squeezed.

The FSB may have said that the recession is over but this is further evidence that the plight of SMEs is certainly not – Banks have been increasingly risk averse during the financial crisis and less willing to provide smaller companies with the funding they so desperately need in order to grow.

Average interest rates on small business loans (up to £1M) actually rose in the third quarter from 3.76% to 3.85% after the ‘Funding for Lending’ Scheme was introduced on 1st August. In stark contrast, average interest rates on large business loans (in excess of £20M) fell from 2.48% to 2.34% over the same period.