Labour idea for small business funding welcome
When politicians run out of new ideas they come up with old ones. If the proposed National Investment Corporation for financing small firms looks familiar it’s because you’ve seen it before – and more than once.
The NIC was announced by the prime minister at Labour’s Party conference in Brighton and will be fleshed out when the Rowlands review of capital is published with the Pre-Budget Report at the end of November 2009.
But it looks very like the old ICFC, the Industrial & Commercial Finance Corporation set up by the Labour government in 1945 to provide finance for small firms. It was funded by the newly-nationalised Bank of England and the main clearing banks, which had their arms twisted by ministers. In the days before private-equity, ICFC was the largest provider of venture capital to British companies.
There was a sister organisation for larger companies – Finance Corporation for Industry - and the two merged in 1983 and became Investors In Industry, now known as 3i and still a major provider of capital to small companies despite its own stock market flotation.
The 1970s government also created the National Enterprise Board to direct finance to firms that could not find it elsewhere. And even this current Labour administration has set up a £1bn innovation fund to direct finance to small firms.
The new NIC is an old idea reworked therefore, but there’s nothing wrong with that if history showed the idea worked previously. And there is clearly demand for small-firms finance: if the privately-owned banks won’t provide it and the publicly-owned banks wont either, then direct government funding will be welcomed by business.
But will the NIC happen? The government is at that stage where it can promise the earth knowing that it will not have to deliver if it is not re-elected. The chance of getting an NIC up and running before the general election – June 2010 at the latest - is low. Without Tory support, there will be no National Investment Corporation.
