In ‘A New Era for Retail Bonds’ Rishi Sunak MP calls for the Government to back the creation of a new exchange for SME bonds aimed at everyday savers.
The report, which highlights the scale of the challenges faced by UK SMEs, is the first published by the Centre for Policy Studies’ flagship ‘New Generation’ programme, which promotes new policy ideas from fresh Tory thinkers, including the MPs from the 2015 and 2017 intakes.
British SMEs are the lynchpin of the economy, generating £1.8 trillion in turnover and accounting for 60% of private sector employment. But while the UK is good at starting businesses, it ranks 13th out of 14 OECD countries in scaling these businesses up. Part of the reason is that SMEs cannot access the debt finance they need to grow – a funding gap of anything up to £35 billion.
The problem is largely that SMEs rely heavily on a few big banks for credit. In the wake of the financial crisis, this lending has been curtailed, leading to a lower volume of loans and higher rejection rates.
A new exchange for retail bonds, modelled on the AIM exchange for shares, would act as a flexibly regulated market where smaller companies could easily sell tradeable bonds. It would also provide an attractive alternative for savers and investors at a time of rock-bottom interest rates.
The report calls on the Government to help foster a new culture of saving in retail bonds by:
- Working with the London Stock Exchange, Financial Conduct Authority and others to create the framework for such an exchange.
- Providing tax reliefs for these new retail bonds, such as allowing their inclusion in ISAs.
- Issuing some Government debt as tradeable bonds for ordinary savers on such an exchange.