Finance for business (or is Vince Cable a loose wire!)

Vince Cable, the Business Secretary, took the opportunity of his address to the CBI annual conference to launch a review of the way the UK companies are run.

Announcing the review, entitled A Long Term Focus for Corporate Britain, Vince Cable set out a series of areas that will be covered in the study. These include short-termism, investor engagement, directors’ pay and the take-over process.

What relevance does this have for the many struggling small to medium enterprises that are desperate to survive this current recession?

You may have read of the Governments open criticism of the banks refusing to lend to business owners resulting in lack of growth and many businesses failing.

Are you aware that the Government is restricting finance available to business owners themselves – courtesy of HMRC ?

Company sponsored pension funds (SSAS) have in the past provided a line of credit to businesses (that does not require them to go cap in hand to the banks). Prior to A Day (5th April 2006). Companies were allowed to borrow back up to 75% of the value of their pension fund at a “commercial Rate of interest” on flexible terms (including interest only).
After A day the borrowing amount was reduced to 50%.

However now the Government has (as well as complicating pensions such that even high quality advisers are confused) imposed such restrictions on borrowing that it is now exceptionally difficult for pension trustees to arrange any form of borrowing from company pension schemes. Particularly with by imposing draconian inflexibility on the terms of the borrowing and draconian fines for schemes that fall foul of the rules.

I am referring to the schemes that include the main Directors pensions and not that of their employees. The only reason that I can determine is that currently it is possible for employers to make substantial pension contributions to pension schemes and these new regulations presumeably prevents employers doing so and then loaning the money straight back to themselves.

However as legislation is now drafted to include restrictions on the amounts that can be contributed to pension schemes. Shouldn’t the government immediately restore the previous flexible borrowing (loan backs ) @ say 75% of pension fund value and cease burdening pension trustees with increasing complications and penalties. So that we can get money out to business NOW by providing business with an emergency line of credit (from their pension funds) as was previously available. After all it is their own money!

Given that the government has been highly critical of the banks refusal to lend, could they not be slated for being rather hypocritical for their failure to assistance business ?

In the past we have assisted many businesses by arranging finance from pension schemes, almost all of the clients we have helped in this way have businesses which have since grown in value at a higher rate than had this form of finance not been available.

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