Access to Finance

Today, ADS made a submission to the BIS Select Committee’s inquiry on access to finance. Launched in December 2015, the Committee is seeking evidence as to whether the UK has globally competitive markets and suppliers for financing growing companies, and whether there improvements that the Government should make to achieve the objective of increasing the number of successful and high-growth businesses in the private sector.

Access to finance is key to ensuring the UK is able to compete and thrive on a global scale – especially in the strong and highly competitive sectors represented by ADS. Only by having access to appropriate internal and external finance will companies have the cash flow necessary to capitalise on the opportunities of global growth. Access to finance is of particular importance to SMEs and Midcaps in this regard.

In order to ensure that the UK retains a strong place in the global market, ADS’ priorities for improving access to finance include:

  • Continuing provision of government grants for innovation and ensuring government works with business to draw on international best practice when shifting from R&D grants to loans.

UK government grants for R&D help ensure the UK remains competitive against other nations who are also incentivising investment. R&D investment is high risk but fundamental to stimulating the innovation which boosts productivity and enhances competitiveness. Financing through grants rather than loans helps reduce the associated risks and encourages companies to invest in developing valuable breakthrough technologies.

In order to ensure a company’s ability to invest in R&D in the UK is not inhibited, ADS believes the Government should work with business and draw on international best practice to ensure that the proposed shift from grants to loans for R&D encourages more investment in innovation in the UK.

  • Boosting investment in innovation by raising R&D tax credits. The UK could double the value of the SME R&D tax relief – at a cost of £600m per year.

R&D tax relief benefits companies regardless of size or sector, providing relatively neutral support across the economy. In May 2014, the EU increased the maximum for R&D tax credits from 35% to 70% relief for SMEs (including Midcaps) and from 25% to 60% for large companies.

The UK could double the value of the SME R&D tax relief – at a cost of £600m per year – and still not breach EU State Aid rules. A doubling of the large companies above the line relief would cost the Exchequer an additional £1.5bn per year and still leave significant scope to raise the credit within the allowable state aid limits

  • Working to increase competition and diversity in the UK’s banking system, ensuring that all companies – regardless of size – have access to the necessary finance required for them to invest in new capacity to grow with global opportunities across ADS sectors.

An inability to access required finance tends to be more prominent with ‘innovative companies’ and SMEs due to the perceived associated financial risk. If such companies are unable to access appropriate finance, the UK supply chain will be in a tougher position to meet increased production targets, develop new products to stay competitive, or grow new business in export markets.

While improvements have been made in recent years, it is clear that the UK still needs more competition and diversity in the UK’s banking system. The UK banking structure continues to be dominated by large institutions and it does not possess a well-developed system of regional banks or banking institutions. A more competitive landscape, coupled with the implementation of targeted tax reforms, will serve to make the UK globally competitive for mobile manufacturing investment.

  • Supporting SMEs to encourage them to export, undertaking a comprehensive review of how other countries and export credit agencies offer financial support across manufacturing supply chains.

Knowledge of and access to appropriate finance is crucial to enabling SMEs to exploit growth opportunities. Strengthening the role of and products offered by UK Export Finance (UKEF) will be key to ensuring more SMEs are aware of the level of financial support they can receive.

ADS supports the proposals outlined in the Productivity Plan for the British Business Bank to work with UKEF to review access to finance opportunities. In order to better understand how other countries offer financial support across manufacturing supply chains, ADS recommends that the review also encompasses an analysis of support offered by other export credit agencies around the world.