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Once called the nation of shopkeepers, the role of small- to medium-sized businesses in the UK economy, whilst underappreciated, is of paramount importance. Of the 4.8 million businesses in the UK, only 1 per cent of UK businesses employ over 250 people.

The Coalition Government’s tentative plans to incentivise the formation of SMEs is encouraging. Mark Prisk (Conservative) was appointed the Small Business Minister within Vince Cable’s (Liberal Democrat) Department for Business, Innovation and Skills. It is likely that Prisk will oversee significant business reform.

Prior to the election, Prisk was advocating a new national loan guarantee scheme, a programme that would provide financing to companies that are denied by banks. He was also promoting a programme called ‘Work for Yourself’ which would provide a weekly allowance to budding entrepreneurs giving them time and a cushion to start their businesses. However, an uncertain recovery may make these reforms unfeasible.

“The UK economy has three major challenges – reducing government spending; rebalancing the economy with less dependence on the financial services and government sectors and repaying consumer debt. To counterbalance these forces, more entrepreneurial dynamism will be critical to driving sustained economic recovery – the UK needs to encourage more company set ups and to make it easier for existing SME companies to recruit additional staff. It is smaller companies rather than bigger multinationals, which will be the engines of UK growth and jobs over the next five years,” says Mark Spelman, Global Head of Strategy, Accenture.

Although, no major bills were announced in the Queen’s Speech during the state opening of Parliament, it is believed that many reforms will be implemented in the 22 June 2010 Emergency Budget.

"There is undoubtedly a pressing need to ensure that SMEs are able to prosper and fuel the rest of the UK economy. In order to ensure that these businesses are the engine room for growth then access to appropriate funding is critical.  The recent government report entitled, ‘The provision of growth capital to UK small and medium sized enterprises’ makes some interesting recommendations.  A combination of government incentives and private capital provision should be a model that can provide a way forward," says Tim Farazmand, Managing Director, Lloyds Development Capital (LDC).

The internet and globalisation are challenging the relevance of large companies and over-reaching government.

Rob Wirszycz, Managing Partner, Fortus Partners says, “Smaller businesses are more dynamic, innovative and closer to their customers. They also employ a lot of people and provide them with meaningful jobs where the purpose of their work is clear and obvious. We must find ways of creating an environment where these kinds of companies can thrive and grow which is pretty much down to a hands-off approach from regulators and government, and a tax regime that provides incentives to employ more people and to allow the business owners to keep more of the value they’ve created over time.”

The need to assist SMEs develop their talent and management skills is of the greatest importance. However, there persists a significant shortfall of skills within SMEs.

“Considering that the UK economy is 99 per cent represented by SMEs that collectively employ 50 per cent of the UK workforce, contributing £1.5 trillion to the GDP, it is essential that a new government encourage and support the development of the talent within these under-resourced businesses. The UK skills shortage is more prominent in the SME sector than anywhere else and support through Training and Development will be one of the most efficient and indeed essential factors in a long term sustainable recovery,” Gary Browning, Chief Executive Officer, Penna.

Many young entrepreneurs look to The Prince’s Trust for funding and guidance when establishing their first business. Steve Wickham, Head of Business Sector Development from The Prince’s Trust comments, "The Prince’s Trust believes in young entrepreneurs and works hard to create opportunities for them to develop their business skills, experience and where appropriate to provide the funding they need to start a small business. The Trust has started nearly 70,000 businesses in the past 27 years and this year will start 2,500 small businesses – a unique and significant investment in UK plc."

The Vice Chair of The Prince’s Trust Enterprise Fellowship, a growing network of entrepreneurs and philanthropists and Chief Executive Officer of TM Lewin plc Geoff Quinn will be speaking at this year’s Criticaleye Summer Drinks Party on 24 June. If you are eligible and would like to attend please contact us.

Please get in touch if you have any comments about the issues in today's update.

I hope to see you soon,