The National Investment Corporation: Some Reaction
I’ve been advocating some form of NIC for months now, but I’m glad to see that I’m not the only one welcoming the proposal.
The ‘Director of Finance’ magazine blog adds some good historical context.
…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.
On the surface this seems like a good idea. Britain has plenty of areas of world-leading expertise – particularly, as Brown mentioned yesterday, in low carbon technologies – and any measures that reconcile the twin aims of a low carbon future with domestic economic growth are to be applauded.
If today’s announcements build on the extension of the scrappage scheme and are designed as a more active approach to supporting industry then they will be welcomed by manufacturers. However, business will be looking to the National Investment Corporation to make a fundamental change in how innovative companies can access the finance they need to grow.
Whatever the banks say, there does seem to be a problem at the moment for businesses that cannot get bank finance but are not big enough to take advantage of the buoyant share and bond markets.
Some private equity executives have expressed concern that the new fund might cherry-pick the best investments, squeeze them out and not provide any net increase in funding. But a well-designed scheme should avoid that.