The incoming UK government after the May 7 election should make a British market for private placed debt a priority says the Confederation of British Industry, which suggests such a move could unlock as much as £15bn.
The employers’ organisation comments that since the 2008 financial crisis, the UK has rebalanced away from traditional bank debt because of balance sheet restructuring and regulatory change.
Despite the encouraging increase in short-term alternative finance, the lack of long-term growth capital, and difficulties in accessing trade finance, are impacting on medium-sized businesses’ ability to grow. In addition, the shortage of capital investment in infrastructure is holding back growth in the wider economy.
In a just-published report, entitled
‘Financing our Future Economy’
, the CBI says that to boost the availability of long-term growth capital the next government should promote a market for privately placed debt, which the Breedon Review – a 2012 government-sponsored paper – estimated could unlock up to £15bn.
It adds that high-growth countries now account for the majority of world growth but two thirds of global trade finance providers (69%) said complex anti-money laundering (AML) regulation and ‘know your customer’ (KYC) requirements are acting as a major barrier to firms getting the trade finance they require.
“The UK is still missing a trick on long-term growth capital,” said John Cridland, CBI director-general. “The next government needs to mind this financial gap otherwise our medium-sized firms – the job creating dynamos of the economy – will suffer.
“In the same way that the profile of alternative finance has increased, we want to see politicians getting behind a UK market for privately placed debt and backing the use of equity finance, to stimulate investment and long-term business growth.
“If firms can’t get the trade finance they need to explore new markets, the UK has no way of meeting its ambitious exports target of £1 trillion by 2020.
“Of course we must have robust AML regulations but the detailed application can be cumbersome and complex and is acting as a brake for businesses wanting to sell their products and services around the world.”
The report also states that the majority of the £466bn investment needed by 2020 to keep UK infrastructure up-to-date needs to come from the private sector, but investors are being held back by uncertainty over the future pipeline of projects.
The government should respond by establishing an independent infrastructure body to determine future investment needs and look at innovative solutions, like ‘bundling’ smaller projects together, to create an attractive proposition for institutional investors.
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