ALTERNATIVE lenders should receive tax breaks to help them compete with high street banks and boost credit conditions for small businesses, according to a lobby group.
The Forum of Private Business (FPB) said that tax cuts for private lenders should be introduced alongside Government plans to increase equity investment via tax breaks for venture capitalists.
The FPB has spoken out in response to Chancellor George Osborne’s speech to last week’s Conservative Party conference in Manchester. The group has welcomed plans to increase tax relief available for equity investors by 30% under the Enterprise Investment Scheme (EIS) in a letter to the Treasury.
But it wants to see tax incentives for private lenders, so there is more non-equity finance available for small firms.
Forum chief executive Phil Orford said: “The Government is trying to make the right noises by announcing a ‘credit easing’ scheme but doubts remain as to the form it will take and how it will work to free up credit for small businesses.
“At best, it is a medium-term strategy that will require the creation of small business bond markets in the first place, and there is a concern that the principle of bundling together mixed risk debt for bond trading is what sparked the credit crunch.
“We need to focus not just on incentivising equity investors but on giving private lenders the tax breaks they need to be able to compete in the finance markets dominated by big banks.
“That would be a definite step towards creating the credit conditions small firms need now if they are to create jobs and drive economic growth.”
A study in 2009 by the National Endowment for Science, Technology and the Arts (Nesta), which promotes innovation, discovered that tax breaks have a ‘material effect’ on encouraging business angel investing.
In all, eight out of 10 of investors surveyed had used the EIS at least once and almost six out of 10 of the businesses invested in had also used it. The study found almost a quarter of the investments would not have been made without the tax incentives.
The FPB wants the Government to introduce tax breaks for private lenders on par with those that equity investors have, with a 20% income tax relief on loans.
It is also calling for credit easing schemes as part of its Get Britain Trading campaign.
The campaign was set up to raise awareness of small firms’ contribution to the economy and to lobby for the removal of barriers to entrepreneurs starting or growing a business.