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How to shift the business cash pile

Whatever else may be holding back recovery, it’s not shortage of cash. 

Today businesses are sitting on a vast cash pile. Britain’s biggest listed companies are reckoned to be sitting on a cash hoard of £166 billion. 

And banks say they have large amounts of money available to lend to SMEs. But instead firms are still paying down debt and declining to make use of overdraft facilities.

The question is not: ‘where’s the money to come from to boost recovery’. It’s how to mobilise the mountain of ready cash already there.

Now there are understandable reasons why this pile has been amassed – and why it may take time for business to commit to new investment and spending.

Memories of the sharpness and severity of the recession are still fresh. Companies do not want to be caught out with a sudden withdrawal of bank support. 

Consumer demand, though strengthening, is still weak. And household budgets continue to be under pressure. 

And companies need to be sure this is a genuine, sustainable recovery and not another false dawn of the type we saw in 2010 and 2011.

But there are also steps we can make to encourage business spending and investment.

It would certainly help if we stopped piling up the barriers to business expansion. Here the Scottish government has much to answer for.

In his budget last week, Finance Secretary John Swinney announced he will be hitting business for an extra £490 million. Business rates collection will climb from £2.4 billion to £2.9 billion in 2015-16. It’s an inflation-busting rise of 16.7 per cent over the next three years.

This comes after the Scottish Government brought in a punishing Scotland-only retail levy, an empty commercial properties tax and hiked business rates.

If you want to see the results, just walk down any Scottish high street to see how ever-rising business rates have been contributing to the decline and exodus of businesses. 

It’s all very well Mr Swinney saying that many small firms are exempt from business rates. But devices like the Small Business Bonus Scheme, the Fresh Start and New Start initiatives only benefit small businesses with low rateable values rarely found within major towns and cities.

As a result, a large number of business ratepayers are unable to apply for potential relief. At the same time, small firms are dependent on orders and business from larger firms which are being penalised.   

As Peter Muir, director and head of rating for Colliers International in Scotland wrote in The Scotsman this week, “Landlords now face paying higher rates, thereby draining funds that could have been used to refurbish or reconfigure properties. There is a real risk this decision could force many smaller landlords that previously enjoyed the backing of institutional lenders, into administration. Our secondary towns and cities require urgent action to make them more attractive but raising the rates burden will only add further misery to these areas.”

Nor has the Westminster government refrained from tax rises that hit business and enterprise. 

The rise in VAT to 20 per cent is proving a major disincentive for hotel and restaurant owners. It raises the hurdle that business expansion needs to clear to be economic. And it has added to the costs of all service businesses. 

How much more sensible it would be were spending on business property renovation and improvement to be exempted from the 20 per cent rate. Instead, many small firms have simply put expansion plans on ice. 

Finally, there is the cloud cast by the deficit reduction programme.  George Osborne says he hopes to cut his budget red ink by ever tighter spending reductions over the next two years. But noisy political opposition makes businesses apprehensive that the government will be obliged to reach for more tax increases – and on businesses that can’t vote. 

How ironic that there is now talk of a possible tax raid on those business cash piles. Says Justin Damer, commercial director at Capita Asset Services, which compiled the cash hoarding data, “If the cash piles do go unspent for a prolonged period of time then there is the risk that the UK government will turn its eye on them for some form of additional tax. While unlikely, there is certainly a precedent, as investors in North Sea oil will remember.”

That would be dangerous and would not be necessary were Westminster and Holyrood to 

Cut rather than raise the rates burden on business

Widen lower VAT rate categories to include business premises improvement and expansion

Take a leaf from Mark Carney’s “forward guidance” book and give a firm commitment to spare business and enterprise from further tax imposts until unemployment falls below seven per cent.

This is   the route to boost business confidence and encourage firms to invest that burgeoning cash pile for investment, enterprise and jobs.