The Dragon delivers his verdict on Labour’s record on supporting small businesses – and asks if the Tories represent better value for the entrepreneur’s vote.
The UK is currently one of the most entrepreneurial countries in the world and ahead of Germany, France and Italy according to annual research published by Global Entrepreneurship Monitor (GEM), but there remains significant headway required to reach the levels of the United States and Australia.
We are an incredibly entrepreneurial place with respect to trademark developments, patents and intellectual property rights – sometimes for the most unbelievable things! On the other hand, despite increases during the last decade in terms of attitudes, patents and supposed prospective opportunities, a report I read in 2007 by Dr Robert Huggins and Nicholas Williams, of the University of Sheffield´s Management School, showed that although the government has put in place numerous enterprise policies to tackle barriers to entrepreneurial development, business start-up rates across the UK have actually fallen since 1997.
One area in which the Labour government has certainly performed well, however, is in the proportion of business start-ups by 16-24 year olds, which rose from 6.5% in 2003 to 8% by 2007. This is not surprising considering the positive measures that the government has put in place to harness the long-term drivers of future enterprise development. This has created significant cultural changes in the education system and initiatives such as the “Make Your Mark” scheme have shown to heighten the awareness of entrepreneurial ventures at a younger age. Many of the fan e-mails that I receive from Dragons’ Den are from kids under 16.
The government’s ten-year Science and Innovation Investment Framework developed in 2004 will also ensure a focus in new business start-ups within growing industries. Hopefully this will pave the way for young entrepreneurs that the government is developing to innovate and produce the technologically advanced products that we require. This framework is ensuring incentives for knowledge transfers and university-business collaboration which will help move this country to a successful knowledge-based economy. My expectation is that the first government innovation awards, the i-Awards that I recently launched with science and innovation minister, Lord Drayson, will be testament to this government policy.
The rising number of applications for patents and IP rights highlights policy successes. However, this equally stresses the need for the government to do more to help entrepreneurs bring their ideas to market – if figures suggest that we are not growing in total early-stage entrepreneurial activity in commercialising patents effectively.
The government must also aim to close the productivity and enterprise gap with the US. The number of transatlantic technology start-ups that have continually enjoyed success within the UK during the first decade of this new millennium has highlighted the growing need for our country to regain territory within this industry.
It’s not unexpected that the government should be attempting to clamp down on inappropriate and unbalanced wage structures, so the 50% top rate of tax for those earning more than £150,000 is not a surprise. What I don’t understand though is how the government has doubled entrepreneurs’ capital gains tax bills. Despite countless statements and policies supporting enterprise in this country it has raised the effective tax rate in selling business assets from 10% to 18%. Moreover, the government has blindly claimed that this policy is targeting private equity companies, yet it will only go so far as to limit the interests of capital funding and furthermore increase the incentives in off-shoring, saving money and starting businesses abroad as opposed to the UK.
While Labour has been criticised for not doing enough to help small firms through the recession, they have been doing all they possibly can - but they face almost insurmountable problems. Their schemes have struck a good balance between supporting small businesses and financial prudence, but the current economic situation still means more small businesses will lose money, and this will continue to cause small businesses to raise the issue that not enough is currently being done.
Tax schemes are not enough, but they would never be the solution. The main problem the government is confronted by is that the banks are still not providing sufficient support and that is where we must now place the pressure. I would also like to see the government providing more grants to companies wishing to go green. This would encourage small companies to innovate, lessen the effects of climate change which in turn results in long term savings and reduction of costs (something that is imperative for small businesses to focus upon).
Do the Tories represent a better bet for the small business owner? The Conservatives have been saying all the right things. They want to “find the big funding gaps” and they want to “force the banks” to support small businesses. However, as we have found with Labour’s policies, while on paper many ideas sound as if they will resolve the problem, in reality it’s difficult to pass on the benefits of such schemes to the small business owner.
They have, however, promised a £50b National Loan Guarantee to underwrite bank loans lent to struggling small companies. I can see the fund going to good use: supporting one-off local companies all the way up to start-ups wanting to go global. If the Conservatives do take power at the next election I can see them heralding a new golden age for British businesses. But I have to ask: where’s the money coming from and beyond the statements of what they promise to do, how will they do it? This is an answer that we really cannot know until (and if) they are in power.
If I could form the next government, the centre of my government and enterprise strategy would be, first and foremost, to provide funding to the hundreds of budding entrepreneurs with fantastic ideas in products that we will require in the future, but are currently finding it difficult to source the capital required – because this is my passion – investing in people with ideas!
The key factors necessary in any enterprise policy aiming to foster greater levels of entrepreneurialism should be:
- a long term government commitment to lower taxation; putting back the capital gains tax bills to its original levels
- reducing the levels of red tape in getting products to market
- providing effective support for potential and existing entrepreneurs
- fostering enterprise in schools
I believe the Labour government has already put in place many of these ideas, they just need greater development and continuity because the focus of this long-term strategy will bear fruition.
If policies are adapted to meet these issues and more support is given to entrepreneurs, then the UK can progress, evolving a truly dynamic, innovative and growing knowledge-based economy at the forefront of science and technology supplied with leading levels of productivity, employment and prosperity.
James Caan is chief executive of private equity firm Hamilton Bradshaw