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Equity Development are regulated by the Financial Services Authority
 
SoCo
 
How David Cameron’s ‘Big Society’
idea can be appliedto helping Small Companies to lift the UK Economy
 
 2 www.equitydevelopment.co.uk
SUMMARY
SoCo
 
points to smaller companies as the best bet to lift and sustain Britain‘s
economic growth - but only if, they can find appropriate finance.
SoCo takes its name from David Cameron‘s ‗Big Society‘ idea of decentralisation
of services away from the State. It applies that principle to the decentralisationof finance for smaller companies away from the dominating banks that refuse tolend to them and the financial institutions that are too big to embrace them.
SoCo‘s
findings
suggest that, given proper incentives, business angels alone couldinvest £4 billion in start-up companies
–
a sum which is greater than any form of assistance that could be expected from the government.It observes that, thanks to the effects of the internet and new media, smallcompanies have a much greater chance of succeeding than ever before.SoCo points to the ever shortening time scales of companies from start-up to
global success and suggests that ‗there are embryo companies that we haven‘t
heard of today that will be world stridi
ng giants in under five years‘.
 It highlights the resilience of an economy based on small companies:It draws fresh attention to the fact that smaller companies employ more than half the UK workforce and observes that, as they grow, smaller companies take onmore employees to cope with increasing sales, whilst large mature companieswith limited growth prospects often seek to improve earnings by reducing theirlabour forces.It records that small companies are drivers of innovation, registering more than60 per cent of all patents.It points out that small company by and large pay taxes whilst many of thelargest companies avoid them.It observes that when large companies fail, they cause national, even globaldistress; whereas when small companies fail, the effect is minimal and localised.Against that background it calls for a much greater differentiation of regulationbetween large companies and small.In particular, it calls for a sustained effort to be made to lift from smaller
companies the excessive burden of ‗catch
-
all‘ red tape that is principally designed
to monitor and control large companies. This burden has a disproportionateeffect on small companies.It pleads for a complete rethink of employment law for companies employing,
say, less than 20 people. This would take the vast proportion of the UK‘s
businesses out of a regulatory nightmare but would have little effect onemployment conditions. In this respect, it also draws attention to the greatersatisfaction enjoyed by employees of smaller companies who can see that their
efforts actually ‗make a difference‘.
 
 
 www.equitydevelopment.co.uk
3
 Finally, the report observes that a new atmosphere of trust must be established if individual investors are to be attracted to support companies both small andlarge.With that in mind, it calls for a removal of the core conflict that has neutered theFinancial Services Authority. That conflict sits between the objective of 
„policing
the City 
 ‗and that of 
„protecting the reputation of the City‟.
 It reports the views expressed by the former CEO of the FSA Howard Davies, thatsenior figures at the FSA used that conflict to argue against action to tackleregulatory and market abuse, stating that action would draw attention to theabuse and thus damage the reputation of the City. It points to that conflict as amajor cause of the failure of the FSA.SoCo argues that new clear objectives must be established and truly independentofficials must be appointed if the Bank of England is not to fall into the samemorass as the FSA.It demands tighter policing of the smaller end of the quoted company market so
that the ‗usual suspect
s
‘ rogue
promoters are denied access to investors who,when robbed of their savings, are deterred from further investment, thusdenying the market as a whole an important source of funding and liquidity.It refers to the higher returns available from smaller companies across the board,to the savings to be made by individuals managing a proportion of their owninvestments and to the time being right to encourage individual investment insmall companies low because of the rates of interest available in the marketplace.It draws attention to the loss of confidence in financial institutions that places theUK near the bottom (101 out of 110 countries) of the recently released Legatum
Institutes‘ Prosperity Index.
It points out that these factors combined are already driving investors to look forsuperior returns and account for a substantial increase in business angelinvestment. It encourages the coalition government to support this trend.
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