What the Coalition needs to learn from small businesses

By listening to entrepreneurs, the government will be much better placed to kick-start the economy, says David Soskin

David Soskin

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For many entrepreneurs, austerity Britain is a tough place to do business. Skyrocketing taxes and fuel bills, banks that love to say “no” and crushing amounts of red tape will be all too familiar laments to those who are building businesses in the real world outside the Westminster bubble.

As the economy staggers on – with almost zero growth to speak of – those of us in the private sector are asking what it takes to put the fizz back into UK business. As public policy expert Lord Blackwell recently pointed out, the UK‘s competitiveness is dire. We ranked 72 out of 139 countries on wastefulness of government spending; 89th of 139 for burden of government regulation and 95th for the ‘effects and extent’ of taxation (Source: World Economic Forum Global Competitiveness Report)

In 1979 Britain similarly was flat on its back. But determined (albeit controversial) policies led to an economic revival which, by 1997, had put Britain in the forefront of global economic growth and competitiveness.

So what should be done now? Recently I attended a forum on growth organised by free market think tank The Centre for Policy Studies at which the collective wisdom of some leading pundits focussed on a number of areas: the removal of the burden of red tape, better banking, the quality of education, further reductions in the public sector and, of course, lower taxes. This is a good list.

I have been suggesting for some time now that there should be a two-tier employment system. Smaller businesses should be given the opportunity to opt out from the crippling rules and regulations which are costly and time-consuming to enforce, and which are sclerotic in their effect. The Coalition is making an excellent start with its proposal to increase the qualifying period for unfair dismissal claims from one to two years. I hope this is the start of a dismantling of much of the employment burden from which smaller companies have suffered since 1997.

A recent glossy advert for one of the big banks features a well-known entrepreneur saying how helpful her bank had to been her. This is at odds with reality. I know how thoroughly exasperated many entrepreneurs have become with the bureaucracy of the banks and their unwillingness to lend even to their most creditworthy customers, a backlash of course to the time when they relaxed their lending to absurd levels. The government must ensure the banks really do fund businesses that need capital to survive and prosper. Of course there are too few banks and there is a strong case for breaking them up to provide choice and competition.

Just as our economy has cratered, so have standards in our schools. Employers know this for a fact and no amount of grade inflation can disguise it. British 15-year-olds’ maths skills are now more than two whole academic years behind 15-year-olds in China. As the education secretary recently pointed out “in the last decade, we have plummeted down the international league tables: from 4th to 16th place in science; and from 8th to 28th in maths. While other countries – particularly Asian nations – have raced ahead we have, in the words of the OECD’s director of education, stagnated”. The Coalition is right to focus on maths and technology teaching but it needs too to grasp the nettle and introduce taxpayer-funded selective schools across the country if we are to be able to compete globally in this new century.

The public sector, even with the ‘cuts’, is still too big. The government plans to spend yet more next year. And the year after. And the year after that. Some cuts! And of course there seems to be little appreciation in the Coalition that raising taxes squashes enterprise and results in a
smaller tax take. As the last Conservative government showed, and as American presidents as diverse as Kennedy and Reagan grasped, if you reduce taxes, so the tax revenue increases.

After just one year, the report card for the Coalition’s efforts to re-invigorate the economy is mixed. They are trying hard but could do a lot better. Talking regularly to some genuine smaller entrepreneurs might help.