Worrying signs of business distress increasing

October 21st, 2008 by admin | Filed under Daily News, Global Credit Crisis, Recession, UK Small Business.

Small businesses are the work horses of any economy. They might not be big, but there sure are a lot of them…and they are almost all struggling. Not only are the credit conditions proving more than a handful for even the best prepared small business people, but the markets at home and abroad are struggling to find cash for all but essential purchases.

David Cameron has floated the idea of a temporary national insurance holiday for small businesses of 1%. This would save a small business which employs 4 people an average of £600 a year. He went on to say that without help, even great small businesses will go to the wall. His message was clear…we must save small businesses from going to the wall to stop this slump turning into something much worse.

He also called on the government to help small businesses with VAT holidays to help with cash flow since banks have recently become very wary about lending money to small firms as they hoard capital for their own balance sheets. Small businesses, according to Cameron, cannot wait for months as the £500bn bailout scheme works its way through the system. Cameron was adamant that the small businesses needed the help now.

David Cameron went on to criticise the chancellor, Alastair Darlings spending splurge as something which could put future interest rates cuts on hold as this approach would fuel inflation and would prevent the bank of England from cutting rates to help homeowners.

Well, the bank wasn’t supposed to cut interest rates while the inflation rate was above the bank’s target rate of 2%…but then again Alastair Darling isn’t supposed to borrow more than 40% of national income. It seems that these fine rules are all well and good when the sun is shining; the umbrella is just too big a temptation to leave in the car when it starts raining. It looks like all bets and rules are off for the forseeable future.

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