Andrew Barclay is an Onward Policy Fellow and co-author of The British Entrepreneur. He is also founder of YOPA.
Next week, Rachel Reeves’ first Budget is expected to hike taxes on businesses. While that will obviously be damaging for economic confidence in general, it could be catastrophic for entrepreneurs.
Even before Labour came to office, entrepreneurship in the UK was struggling and under threat.
That is the conclusion of Onward’s new report, The British Entrepreneur, that argues Britain is falling behind other countries both in the creation of new business and growing the ones we already have.
I witnessed this first hand a decade ago when I was working in Hong Kong. People I met from Asia, America and beyond all seemed to have a driving ambition to start up their own business. But when I returned to the UK and started my own venture, it was apparent that such an entrepreneurial zeal was missing here.
Britain was once seen as the entrepreneurial leader in the world, but we have lost our way.
Why is this important?
Small businesses remain the lifeblood of an economy – stimulating innovation, competition and growth. The evidence from our polling and focus groups, talking directly to the next generation of potential entrepreneurs and those unwilling to grow their current businesses, was stark. There was a deep cultural aversion to risk taking and breaking down the barriers necessary to start a business.
We found that too many small British businesses are remaining that way.
The share of smaller and medium sized enterprises in Britain is higher than among our major competitors — but few are growing quickly and most are not growing at all.
The share of businesses increasing headcount was 20 per cent in 2012; a decade later it was only 12 per cent. Similarly, for those interested in making the leap to found their own venture, they are deterred by high costs, especially taxes, excessive regulation and a lack of access to finance. Our research found that there are two specific groups that the Government should focus on – those contemplating growth and those currently growing their business.
Within the general population, those “on the bench” (71 per cent of the population) are unlikely to be persuaded to become entrepreneurs, while those “on the fence” (18 per cent of the population) and “on the brink” (11 per cent of the population) are much more open to take risks — but are all fearful of the consequences of setting up their businesses.
So, why is this happening?
Onward’s research found four reasons for these declining entrepreneurship rates.
First, and most crucially, the costs of starting and running a business are too high. Taxes, from VAT to property to National Insurance, are seen as a huge impediment to business growth.
Second, potential founders find it harder in Britain to obtain external finance – behind EU, US and Asian competitors. More Brits rely on their own financial resources, friends and family. That is important because external finance positively correlates with faster business growth.
Third, British entrepreneurs are uniquely risk-averse.
Those citing a fear of failure in starting a business in the UK is 20 per cent higher than the global median. This is driven largely by concerns about individuals losing money or their assets but also by fears of reputational damage. It extends to academia too: just five UK universities rank among the top 100 for producing successful entrepreneurs, compared to ten from California alone.
Fourth, bureaucracy here is significantly worse here than many competitors. British businesses spend 5.6 per cent on admin. That is better than France at 7.7 per cent and Spain at 10.5 per cent but way behind many others – Germany at 3.7 per cent, US and Australia at 4.9 per cent. This matters because every hour spent filling in forms, or waiting for HMRC to pick up the phone, is an hour less growing your business.
It is not for government to address all these challenges. But there are some – tax levels, excessive bureaucracy, planning approvals – where they can make a real difference. So what could encourage more people to set up their own business and turn those ventures into fast growth companies?
Reducing costs and taxes in the first year of a business is the most obvious step.
The British Entrepreneur research proposes creating a new “Business Startup Tax Relief,” based on start-up tax reliefs used in Ireland and the Netherlands, to dramatically reduce the risk in year one and encourage people to make their entrepreneurial leap.
The current VAT threshold also needs replacing with a taper that comes in at a lower rate, increases gradually but does not reach the current 20 per cent until turnover is over £100k. This would eliminate the turnover “cliff edge” that exists currently that acts as a barrier to businesses expansion.
Crucially, small businesses need better access to finance. Our recommendations include the formation of a new wave of commercial bank-backed Community Development Finance Institutions, while transforming the British Business Bank’s funding finder tools allowing more of our small businesses to access the funding they need to set up and scale.
And finally, the burden of bureaucracy has to be slashed.
Simplifying administrative processes, particularly around planning and securing new premises, could reduce the roadblocks that hold back many businesses. One entrepreneur we interviewed reported that they had waited for a simple change of use for a property for months – only to find the conditions set by the council were so onerous that it made the entire business unviable. Faster planning approvals would also encourage additional commercial investment, particularly at a regional level.
Any tax, policy or regulatory changes should be focused on two groups: those entrepreneurs who are keen to expand further; and, critically, the 13m people identified in our research who are “on the brink” of setting up a new venture but who are deterred by the negative entrepreneurial environment.
It would be a delight to see some or all of these measures in the Budget next Wednesday.
Labour were eager to tout their pro-business credentials before the election, but their tax hikes and burdensome regulations could drive out the innovation, competition and growth our country needs.
Instead it may fall to the Conservatives to reassert themselves as the party that understands what Britain needs to become a thriving entrepreneurial nation once again.
Andrew Barclay is an Onward Policy Fellow and co-author of The British Entrepreneur. He is also founder of YOPA.
Next week, Rachel Reeves’ first Budget is expected to hike taxes on businesses. While that will obviously be damaging for economic confidence in general, it could be catastrophic for entrepreneurs.
Even before Labour came to office, entrepreneurship in the UK was struggling and under threat.
That is the conclusion of Onward’s new report, The British Entrepreneur, that argues Britain is falling behind other countries both in the creation of new business and growing the ones we already have.
I witnessed this first hand a decade ago when I was working in Hong Kong. People I met from Asia, America and beyond all seemed to have a driving ambition to start up their own business. But when I returned to the UK and started my own venture, it was apparent that such an entrepreneurial zeal was missing here.
Britain was once seen as the entrepreneurial leader in the world, but we have lost our way.
Why is this important?
Small businesses remain the lifeblood of an economy – stimulating innovation, competition and growth. The evidence from our polling and focus groups, talking directly to the next generation of potential entrepreneurs and those unwilling to grow their current businesses, was stark. There was a deep cultural aversion to risk taking and breaking down the barriers necessary to start a business.
We found that too many small British businesses are remaining that way.
The share of smaller and medium sized enterprises in Britain is higher than among our major competitors — but few are growing quickly and most are not growing at all.
The share of businesses increasing headcount was 20 per cent in 2012; a decade later it was only 12 per cent. Similarly, for those interested in making the leap to found their own venture, they are deterred by high costs, especially taxes, excessive regulation and a lack of access to finance. Our research found that there are two specific groups that the Government should focus on – those contemplating growth and those currently growing their business.
Within the general population, those “on the bench” (71 per cent of the population) are unlikely to be persuaded to become entrepreneurs, while those “on the fence” (18 per cent of the population) and “on the brink” (11 per cent of the population) are much more open to take risks — but are all fearful of the consequences of setting up their businesses.
So, why is this happening?
Onward’s research found four reasons for these declining entrepreneurship rates.
First, and most crucially, the costs of starting and running a business are too high. Taxes, from VAT to property to National Insurance, are seen as a huge impediment to business growth.
Second, potential founders find it harder in Britain to obtain external finance – behind EU, US and Asian competitors. More Brits rely on their own financial resources, friends and family. That is important because external finance positively correlates with faster business growth.
Third, British entrepreneurs are uniquely risk-averse.
Those citing a fear of failure in starting a business in the UK is 20 per cent higher than the global median. This is driven largely by concerns about individuals losing money or their assets but also by fears of reputational damage. It extends to academia too: just five UK universities rank among the top 100 for producing successful entrepreneurs, compared to ten from California alone.
Fourth, bureaucracy here is significantly worse here than many competitors. British businesses spend 5.6 per cent on admin. That is better than France at 7.7 per cent and Spain at 10.5 per cent but way behind many others – Germany at 3.7 per cent, US and Australia at 4.9 per cent. This matters because every hour spent filling in forms, or waiting for HMRC to pick up the phone, is an hour less growing your business.
It is not for government to address all these challenges. But there are some – tax levels, excessive bureaucracy, planning approvals – where they can make a real difference. So what could encourage more people to set up their own business and turn those ventures into fast growth companies?
Reducing costs and taxes in the first year of a business is the most obvious step.
The British Entrepreneur research proposes creating a new “Business Startup Tax Relief,” based on start-up tax reliefs used in Ireland and the Netherlands, to dramatically reduce the risk in year one and encourage people to make their entrepreneurial leap.
The current VAT threshold also needs replacing with a taper that comes in at a lower rate, increases gradually but does not reach the current 20 per cent until turnover is over £100k. This would eliminate the turnover “cliff edge” that exists currently that acts as a barrier to businesses expansion.
Crucially, small businesses need better access to finance. Our recommendations include the formation of a new wave of commercial bank-backed Community Development Finance Institutions, while transforming the British Business Bank’s funding finder tools allowing more of our small businesses to access the funding they need to set up and scale.
And finally, the burden of bureaucracy has to be slashed.
Simplifying administrative processes, particularly around planning and securing new premises, could reduce the roadblocks that hold back many businesses. One entrepreneur we interviewed reported that they had waited for a simple change of use for a property for months – only to find the conditions set by the council were so onerous that it made the entire business unviable. Faster planning approvals would also encourage additional commercial investment, particularly at a regional level.
Any tax, policy or regulatory changes should be focused on two groups: those entrepreneurs who are keen to expand further; and, critically, the 13m people identified in our research who are “on the brink” of setting up a new venture but who are deterred by the negative entrepreneurial environment.
It would be a delight to see some or all of these measures in the Budget next Wednesday.
Labour were eager to tout their pro-business credentials before the election, but their tax hikes and burdensome regulations could drive out the innovation, competition and growth our country needs.
Instead it may fall to the Conservatives to reassert themselves as the party that understands what Britain needs to become a thriving entrepreneurial nation once again.