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30 December 2002

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Directors urge government not to sacrifice stable economy

Cambridgeshire business directors have delivered a stark warning that the government will jeopardise the UK's beneficial macro-economic stability and threaten the existence of many smaller companies by joining the European currency system.

The Institute of Director's Eastern Branch chairman Stephanie Smye said: "It would be an act of the highest folly for a future UK government to terminate the successful monetary policy of recent years by participating in the Euro project.

"The government's macro-economic policy since 1997 shows every sign of delivery the stability that the business community wants. Entry into the Euro and subjecting British business to the tender mercies of the European Central Bank would, without adequate economic convergence, risk a return to economic instability."

Miss Smye pointed out that the 3.7 million businesses in the UK today was still below the level that existed before the last recession a decade ago when numbers fell from 3.8 million to 3.5 million. "This forcefully demonstrates the importance of maintaining a stable macro-economic framework that will prevent a return to high inflation and interest rates," she said.

Miss Smye added that the government could improve the business environment by reducing the burden of taxation on companies and individuals and cutting back on costly and unnecessary red tape.

"Under the present government the burden of taxation has increased from 32.5 per cent to 37.3 per cent of gross domestic product, which means household disposable income has diminished," she said. "Cutting taxes would allow businesses to invest in growth plans and help individuals to accumulate sufficient funds to start new enterprises."

She was commenting on new IoD research that reveals that a majority (55 per cent) of directors rely on accumulated profit to finance business activities rather than bank loans (46 per cent) and overdrafts (42 per cent). Out of 70 per cent of directors whose companies have cash deposits at the bank, 40 per cent had increased the amount over the past year primarily to guard against unforeseen circumstances (28 per cent) or an economic downturn (23 per cent).

Despite a long-standing debate over the level of bank support for businesses, the survey revealed that 74 per cent of directors did not believe it was difficult to obtain finance for their business and 73 per cent said they had a good relationship with their bank. Only 32 per cent reported having changed their firm's bank in the past, suggesting that the quality of service will improve as banks compete for customers.

However, the report called on banks and accountancy firms to work harder in helping start-up enterprises and small firms to improve their business propositions when approaching venture capitalists for finance to support expansion plans. "Many businesses may not fully appreciate the different sources of finance that may be suitable to their needs," it says.

January 2002




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