Conservative MP Bim Afolami has called for the creation of a £15bn Recovery Fund to help British scale-ups recover from coronavirus.
Bim Afolami is one of a growing chorus calling for a fund to convert the mountain of debt businesses have taken on during the pandemic, including the Business Growth Fund and ex-Treasury minister Jim O’Neill.
The Afolami version would be floated on the London Stock Exchange after three or four years, once recovery is complete.
Shares would be issued, at a heavy discount, to frontline NHS workers and people aged between 18 and 39, ringfenced for those who earn less than £30,000.
Separately, Bim Afolami has called for up to 20 per cent of people’s ISAs – tax-free investment vehicles – to be allowed to be invested directly into small businesses, which, the Hitchin and Harpenden MP says, would unlock £6bn of investment into British SMEs if just 2 per cent of total ISA investment was redirected to small firms.
Mr Afolami said: “It is governmental action to ensure that, as we rebuild our economy and our SME sector, we ensure that the British people directly benefit from their success.”
Mr Afolami’s call may not fall on deaf ears.
Back in 2017, then MP Rishi Sunak also called for the creation of a retail bond market, to raise billions of pounds for small business. Like Afolami’s proposal, Mr Sunak also suggested investments could be included in the annual £20,000 ISA investment allowance.
How the Recovery Fund would work
The problem, says Mr Afolami, is that once the coronavirus crisis has passed, over-leveraged companies which have borrowed from the Coronavirus Business Interruption Loan Scheme (CBILS), will be hobbled by having to repay debt. These distressed firms will be forced to lay off staff, sell assets, reduce investment, and shrink their businesses, as they become reluctant to raise new capital.
The Government should borrow £15bn to set up the Recovery Fund through issuing gilts, and the British Business Bank should administer the fund.
The BBB would not invest directly into SMEs themselves – and all business owners would have a choice whether to accept the equity – but would allocate money to a range of FCA-regulated fund managers across Britain, who already actively invest in the estimated 300,000 scale-ups in the UK.
“The Government will not be ‘picking winners’ itself – the investments would be made on a professional basis,” said Mr Afolami.
To qualify for Recovery Fund money, businesses should:
- Have revenues of between £5m and £500m
- Be incorporated in Britain and have most of its operations and revenue made in Britain
- Not be quoted on any stock market
- Be trading profitably in the year before the Covid-19 lockdown
- Have the potential to grow and be successful in the long-term if the debt burden can be reduced
- Need more equity for working capital in order to resume its growth, and repay debt (including CBILS) that the company has borrowed in order to survive Covid-19
Opening up ISAs to British SMEs
Back in 2013, the Treasury allowed ISAs to be invested directly into fast-growth companies listed on the smallest AIM stock market. Mr Afolami says the move has proved “incredibly successful” in providing these companies with long-term “patient capital”. While there are no precise figures, Mr Afolami estimates that between £5bn and £10bn has been invested in AIM shares through ISAs over the last seven years (out of a total Stocks and Shares ISA asset base of around £300bn).
Mr Afolami advocates allowing up to 20 per cent of an ISA pot to be invested in British private companies. Again, like the proposed Recovery Fund, any investments would be made through an FCA-regulated adviser and would be only open to those individuals who have taken advice and have at least £5,000 in their ISA pot.
