Much is being made of the government’s decision to embrace non-bank finance, but the SME debt recovery plan threatens to undo its good work.

It seems strange that, at a critical time for small businesses and the national economy in general, the government seemingly remains determined to introduce new powers for HMRC to recover business debt directly from SME bank accounts.

There is a clear need to tackle bad debt in the small business sector and those guilty of tax evasion should rightly be exposed and punished, but allowing HMRC access to SME finances appears like a case of extreme overkill. The government is fully aware of the major financial challenges that SMEs have faced in recent years, not least because of the cautious attitudes of traditional lenders and the slovenly approach to payment from larger companies. Of all the sectors to target, the SME one should be the last.

Such powers pose a threat to small business growth and, in turn, to overall economic recovery. Just because the green shoots are appearing, it’s no time to abandon the spade work. The government still has a lot to do in supporting the SME sector, from promoting non-bank finance services such as invoice finance and peer-to-peer lending, to stripping away regulations and red tape and easing the tax burden.

Hence, the new HMRC powers, proposed in the 2014 Budget, seem like a backward step. More and more stories about record levels of SME confidence are making the news. This optimism needs nurturing, not burying by the HMRC debt recovery plan.

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