by Malcolm Hyde, regional director CBI South East

These are strange times.

Official figures suggest doom and gloom but conversations I have had with many businesses suggest that the economy isn’t necessarily in negative territory, just frustratingly flat.

One thing which everyone is agreed on is that confidence needs to be boosted – not by smoke and mirrors but by tangible and emphatic growth measures.
We need to find room for more investment.

Now is the time for the government to look again to see how it can increase the current level of capital spending.

The reduction to 1.25% of GDP (it used to be 4%) invested is too much: let’s use the significant underspend across government departments and make more of the strength of UK plc’s balance sheet.

But new government institutions are not the answer; private sector solutions underpinned by government are more likely to be successful.

Giving housing associations the ability to build more social housing and boosting the New Buy initiative for first-time buyers — so that our young people not only have affordable deposits but also low interest payments (4 % instead of 6%) — would make a huge difference in take-up.

At the top of the “too difficult” pile sits funding for small and medium-sized firms. It’s a classic Catch-22. Here are the businesses with the greatest potential to grow and create jobs, but the dramatic rise in borrowing costs means they can’t.

The UK’s recovery depends on the ability of these companies to invest in new staff, equipment, buildings and, more important still, their ability to export goods and services. The trickle-down effect would be hugely beneficial.

The Government’s Funding for Lending scheme will help in the short term by allowing banks access to cheaper capital.

The incentive is clear: the more they lend, the more they can get hold of. Encouragingly, a number of the big banks are already doing this.

In the longer term, many investors do not see equity as an attractive destination for their capital, so a vital funding source of some £30bn is largely untapped. Unlocking just some of this could make a real difference.

Perhaps the Treasury should look at tax relief for raising equity, putting it on a par with debt finance? Cost to the Exchequer – approx £160 million a year – a good investment.

One thing that would give MSBs an instant shot in the arm would be Government opening- up the Enterprise Investment Scheme (EIS) to them.

At the moment the cap on the number of employees and level of investment make it too small for this type of company to access.

Larger companies can also invest in their supply chain. Many of them have substantial cash reserves on their balance sheets but need encouragement to invest it. Reinstating a corporate venturing tax incentive would to help to make this happen.