Wednesday, 15 February 2012

Osborne gives £200m to unviable business, paid for by viable businesses – pure genius.

George Osborne, the UK’s finance minister, is to give £200m to a scheme to help small and medium size businesses (SMEs) obtain loans: a touchy feely idea which will doubtless win votes from the more woolly minded section of the electorate.

Of course the £200m has to come from somewhere, and it inevitably comes from more viable businesses: that’s businesses which manage to fund themselves WITHOUT any artificial assistance.

The “logic” behind Osborne’s wheeze is presumably that banks are more cautious than prior to the crunch, which means some SMEs can’t get loans, which proves that taxpayers’ money should be used to subsidise such loans.

A more credible argument is thus. Banks were undoubtedly too lax with loans prior to the crunch. Thus banks’ CURRENT lending regime is now at a more sensible or rational level.

Thus SMEs which whine about difficulty in obtaining loans need to catch up with the new reality.

As to the possibility that the £200m represents new money or stimulus, the purpose of the economy is to provide the consumer with what the consumer wants (in the form of stuff produced by the private AND public sectors). Thus £200m should be handed to the consumer and be used to boost public sector spending, as suggested by Simon Jenkins in this and similar articles. As to which firms succeed in meeting that extra demand, that’s up to the market – the capitalist system (which I thought Obsborne favoured).

Moreover, the extra demand will enable a proportion of those “can’t get a loan” SMEs to actually get loans: nothing impresses a bank manager like a healthy order book. In contrast, bank managers are not impressed by businesses kept afloat by artificial taxpayer funded assistance: the latter is liable to be withdrawn when the next fad as to how politicians can “help” the economy comes along.



  1. "Thus SMEs which whine about difficulty in obtaining loans need to catch up with the new reality."

    Absolutely. In every case I've seen when you look under the surface you see a non-viable business plan or one that only works if they can use somebody else's money for free.

    What these SMEs need is equity investment, not debt.

  2. Agreed.

    We have this clever mechanism to decide which businesses should succeed or expand, it's called "allowing the consumer to spend his money where he likes" and we need absolutely nothing more than that. We do not need investment managers, analysts, civil servants or even bankers to decide how to allocate capital - the consumer does it for us, for FREE!

    And the best source of finance of all is retained profits, not new equity. Sure, businesses start off with 'equity' i.e. what little cash the founder can scrape together, by and large, retained profits funds everything after that. That way, businesses don't over-expand and go pop again, they just chug along.


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