Your manifesto

What do entrepreneurs really make of Labour’s enterprise policy? And if you could form the next government, what would be your first act? GB gave some leading entrepreneurs a chance to get on their soapbox – and compose a manifesto of their own

It might be hard to remember now, but by certain measures the New Labour project was, at first at least, a success of sorts for small business. Tony Blair swept to power reminding us that the number of small employers had declined by half a million since 1990 and was broadly welcomed as a replacement for a government which the small business community felt was insensitive to their needs.

By 2007, the number of small and medium-sized enterprises had apparently reached record levels after steadily increasing year-on-year, the economy appeared unusually stable and research from the Global Entrepreneurship Monitor (GEM) suggested the UK had become one of the most entrepreneurial countries in the world.

And then, just as US homeowners started to default on their mortgages in great swathes, Alistair Darling announced plans to scrap CGT taper relief and Labour’s relationship with small business turned decidedly sour. A reassessment of those start-up statistics suggested some canny goal post moving. And Tony Blair had promised to cut red tape but research from the British Chambers of Commerce (BCC) found the cost of regulations to business introduced by Labour since 1998 has risen by £10bn to £77bn.

Lobby groups, meanwhile, pointed to increases in national insurance (NI) contributions and a host of other stealth taxes, and most pointedly, the government’s recent failure to improve the provision of credit to embattled firms struggling with cashflow problems. Despite a raft of measures, including the Enterprise Finance Guarantee (EFG), doubling the main capital allowance rate to 40% and allowing loss making firms to reclaim taxes, the Tories have stolen a march, with a number of surveys suggesting small business owners will be backing Cameron at the next election.

But does his party really represent a better bet for small business? What do entrepreneurs make of the New Labour project 12 years on? And what would really make for an entrepreneurs’ manifesto? To find out, we polled a handful of entrepreneurs, with unsurprisingly mixed results. Most agreed that we’re a more entrepreneurial nation now than in 1997, but few of our interviewees gave Labour full, if any, credit for that. Its record on small business managed to disappoint those on the right (David Soskin) and left (Laura Tenison) but there was also widespread uncertainty over what the Tories can really offer. If Cameron is to form the next government though, he could do worse than instruct George Osborne to listen to some of the ideas expressed here.

Do you think the UK is a more entrepreneurial place now than it was in 1997?

James Caan:  There is more than one answer. With respect to attitudes to new business start-ups and a growing interest in entrepreneurialism, yes. We are an incredibly entrepreneurial place with respect to trademark developments, patents and intellectual property. This points to the UK enjoying a flourishing entrepreneurial environment.

On the other hand, business start-up rates across the UK have actually fallen since 1997. One explanation is Labour’s influence in increasing dependence on public sector employment, which has led to many individuals making job security their priority in choosing employment and lessening people’s inclination to take entrepreneurial risks. And, most concerning, the latest results published by the GEM suggest the current recession has provoked a change in attitudes between 2007 and 2008 – dropping from 35% of people believing there to be opportunities in their local area to start a new business to just 27%, twice the average decline expected for high income countries.
 
David Soskin: Hardly: regulations imposed on business since 1997 are estimated to have cost £77bn; government expenditure has risen from 40.6% to 45.4% of GDP since 1997 and is now higher than Germany; and of course taxes have shot up across the board.

Laura Tenison:  There is less fear but I am not sure that is such a good thing. Being an entrepreneur is not an easy option and is definitely not a way to get rich quick. The media has portrayed entrepreneurialism as a way to make millions with ease but the reality is that most self employed individuals are extremely hardworking and manage to survive and make a living, but they will never be Mr Bannatyne.

Joel Hagan: Yes. It’s actually social reasons that have affected this particularly. People are more open to working for smaller companies. It’s seen as less of a risk relatively because large companies are not the risk-free places they once were and people don’t perceive them as forces for good.  We live in an age of greater social conscience.

If anything, what did Labour get right? What did it fail to address?

Barry Houlihan:  The initial reduction in CGT rates was beneficial as is the EIS scheme [a government scheme that provides a range of tax reliefs for investors]. However, Labour has made everything more complex with much more red tape, not to mention the overspending on public services and putting the country into a terrible future debt problem which will mean more tax rises.

Charlie Mullins: The problem with New Labour is that it is obsessed with being seen as classless, which has spawned a decade of policies designed to send everyone to university, no matter what they are best suited to doing. This has created a huge skills shortage, which they have finally realised, but it’s too late.

David Soskin: They have failed to address three major things: sorting out the education system – how can it be that City law firms and Oxford colleges now have to teach remedial English classes?; the crumbling transport infrastructure; and making Britain the European Korea with high speed internet access for all. The ludicrous Digital Britain report was just another example of headline-grabbing replacing proper policy.

James Caan: Positive measures that the government has put in place have created significant cultural changes in the education system and initiatives such as the ‘Make Your Mark’ scheme have heightened the awareness of entrepreneurial ventures at a younger age. The government’s 10-year Science and Innovation Investment Framework developed in 2004 will ensure a focus on new business start-ups within growing industries.

Government policies have remained comparatively low and regulation comparatively light, particularly favouring financial and business services sectors. But given the failure of such industries and the need to redevelop the economy of this country, several issues need to be addressed. The government must 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 in the last 10 years has highlighted the growing need for our country to regain territory within this industry.

What have you found most disappointing about Labour’s enterprise policy?

David Soskin: The state presides over everything and business is crushed in the process. 33,000 individual insolvencies in Q2 of 2009, the highest quarter on record, and 5,000 company liquidations (up 39% on 2008) is a fitting epitaph to New Labour’s enterprise policy.

Charlie Mullins: The great failure to live up to Tony Blair’s mantra of  ‘education, education, education!’  I want to employ lots of apprentices, but despite all the hype they will not give me, or any other employer, any financial support to create these vital positions to train young people. The government seems content to pay out Jobseekers’ Allowance rather than having these youngsters in real work. I’ve even sent the government details of a scheme that would put thousands of apprentices in work tomorrow, 20 of them working for me, but they have completely ignored it.

James Caan: The productivity gap of British industry in comparison with our counterparts leaves much to be desired. The short supply of elementary/vocational skills within the workforce and the comparatively low levels of spending on R&D contribute extensively to this productivity gap. I could not understand the government’s dismantling of the Training and Enterprise Council (TEC) framework [abolished in 2001 and replaced by the soon to be defunct Learning and Skills Council (LSC)] because it created significant setbacks to the work done by the previous Conservative government.

What did you think about the 50% top rate of tax for those earning more than £150,000?

Joel Hagan: I’m not advocating regressive taxation, but I don’t support progressive taxation of this sort. It doesn’t raise a lot of money and it discourages those people who earn most – who probably generate employment by their endeavours and by spending their money. It’s quite inconsistent with maintaining high levels of public spending.

Charlie Mullins: It’s a penalty on success, and all it will do is send some top earners abroad, which in today’s globalised world is not nearly as hard as it was for the tax exiles of the 1970s.

Richard Reed: I think you fail the common sense test if you take away more than 50% of someone’s income. While I don’t like it, I think it was probably the right thing to do, but definitely no further.

Barry Houlihan: A politically motivated blunder to wrong foot the Tories. The government doesn’t even expect to gain any real tax increase from it yet it will damage the UK’s reputation.

David Soskin: It’s unlikely to raise revenue, it makes us the highest taxed nation in the G8 and therefore puts the UK at the bottom of the competitiveness league for high earners and it seriously threatens the UK’s ability to rebuild enterprise and restore its battered economy. To address the budget deficit, how about slashing state spending?

Laura Tenison: While it’s always a shame to lose tax payers from the country, this rate of tax will affect a few people who can well afford it. I believe in social justice and nobody needs to earn move than £150,000 a year. At least this is a direct tax. Labour’s stealth taxes which have affected the whole population are a cowardly and fickle way of extracting tax from the populace in the vain hope that they will be too stupid to notice.

Has the government done enough to help struggling firms?

Laura Tenison: Failing businesses should be allowed to fail without tax payers propping them up. However, there are healthy businesses that are struggling due to the lack of credit finance available and businesses which could have expanded hugely over the past two years which have stagnated due to the banks’ lack of confidence in lending – despite a full order book. The government should underwrite bank loans in these cases, following a sensible audit.

James Caan: Labour’s 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. That’s why 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. 

David Soskin: Endless increases to the tax and regulatory burden and the failure to persuade the banks to lend far outweigh any apparently ‘business friendly’ measures.

Do entrepreneurs need an actively supportive enterprise policy, or simply the right legislative environment to succeed?

David Soskin: Definitely the latter. Entrepreneurs need government to leave them alone. But they do need a supportive environment in which to operate. That means improved educational standards, a better transport infrastructure and a supportive retail banking system.

Laura Tenison: The reality is that true entrepreneurs will succeed in spite of the government and do not need incentives. Some of the best entrepreneurs this country has ever known walked in as refugees after the last World War with nothing but their energy, guts and determination. We need to stop spoon-feeding the population, if they are hungry they will work out a way to eat.

Do the Tories represent a better bet for the small business owner?

David Soskin: I am not sure that the Tories could be worse: at least many of them have had business experience. It is hard to know where Mr Cameron stands on enterprise. Not so long ago he said that he would follow Labour’s spending plans! More recently, he has been talking about the need to trim the power and spending of the state.

Laura Tenison: I had hoped they might, but am disillusioned between campaign promises and the realities we are to expect when a new party gets into office. My hopes were huge for Labour on the back of the very sound campaign challenges promised by Gordon Brown to small businesses before they got into office. We have been disappointed.

Charlie Mullins: From what I’ve heard from talking to George Osborne recently they are far more business friendly and open to good ideas.

Joel Hagan: Probably. Instinctively lower taxation, smaller government. More likely that their MPs will have commercial experience rather than public sector experience so more empathetic and understanding of the long-term value to the economy.

James Caan: The Conservatives have been saying all the right things. They want to  “find the big funding gaps” and  “force the banks”  to support small 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?

If you could form the next government, what would be at the centre of your enterprise strategy?

David Soskin: It is not a matter of new policies. What is required is a bonfire of Labour’s ill-judged legislation and the abolition of the stream of directives that have emanated from Brussels such as the dreadful “working time directive”. I would allow small businesses to opt-out of many of the rafts of bureaucracy for which they are ill equipped to deal with – such as the employment legislation that is designed for larger employers with their armies of HR personnel and their vast legal budgets.

Charlie Mullins: At a stroke of a pen my government would make sure that the UK will have the skilled tradespeople it needs for the next 30 years. On the first day I would implement a policy that would see employers subsidised to train apprentices. Employers would get a three year NI contribution holiday, with my government covering wages in year one. In year two, the scheme would see wages split 50/50, and the employer would pay all the wages in the third year.

On day two I’d begin a crackdown on time wasting in all areas of government. This current lot are obsessed with targets – mine would be to cut out about 90% of all meetings. If Westminster was a business they’d be broke before they’d even elected a committee to decide which brand of Fairtrade coffee other committees should serve.

Laura Tenison: Local enterprise agencies have the ability to audit companies, especially in grant assisted areas. With this level of auditing in place it would be possible to underwrite forward orders and assist companies with the lack of credit available in a sensible and plausible manner. In addition, I would ensure that the long term unemployed were offered the option of taking a work placement with responsible companies in lieu of the dole to further their experience and ensure they remain employable. I would also encourage employers to take school leavers on subsidised apprenticeships instead of encouraging them to go to university.

Joel Hagan: I would choose industries in which I wanted the UK to lead globally and confer on them key benefits: reduce risks, for example by providing grants, low interest loans and investment money at reasonable valuations; reduce costs by cutting some slack on areas such as health and safety, employment law and bureaucracy; and increase the benefits, for instance by giving tax breaks to the company, especially R&D tax credits, and the individuals who take the risks through enhanced EIS/EMI i.e. lower taxation on returns.

James Caan: 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 their original levels; reducing the levels of red tape in getting products to market; providing effective support for potential and existing entrepreneurs; and fostering enterprise in schools. I believe the Labour government has already put many of these ideas in place, they just need greater development and continuity.

Richard Reed: Tax incentives for people who make long term investments in start-ups. The hardest part of setting up a business is raising the funds. The most important thing is a stable macro economic environment and then simple, common sense, fair legislation. The government is best off focusing on those. But whichever way you look at it, the UK is one of the best countries in the world to set up a business in terms of public goodwill and light legislation.