SCIENCE AND TECH
"As Churchill said, private enterprise is the strong horse that pulls the whole cart, so we must do whatever we can to make it easier for businesses to start and grow. As this excellent report argues, access to finance is a major issue for businesses who are keen to scale up. If we want to grow the economy that should be our principal focus alongside cutting red tape and making sure we increase incentives to invest."
Britain can unlock a new generation of entrepreneurs and inspire growth among small businesses with major reforms to tax, regulations and lending. Too many small British businesses are unable to grow, leaving the country reliant on 1% of businesses for over 11% of its productivity.
The British Entrepreneur argues that a lethal combination of high costs, poor access to finance, harsh economic conditions, a uniquely high fear of failure, and excessive red tape are holding back entrepreneurial Britain.
But these challenges affect groups of current and aspiring entrepreneurs in different ways. Using polling from JL Partners, the report identifies a pipeline of entrepreneurial talent, grouping the general public based on their likelihood of starting a business, and entrepreneurs based on their growth aspirations.
Within the general population, those “on the bench” (71% of the population) are unlikely to be persuaded to become entrepreneurs, while those “on the fence” (18% of the population) and “on the brink” (11% of the population) are much more open to take risks — but are all fearful of the consequences of setting up their businesses.
Among entrepreneurs, there are the “sole operators” (those least interested in growing their businesses), “contemplators” (those wanting to grow their businesses but concerned about profitability), “growers” (those already growing businesses but worried about costs) and “executives” (those leading businesses already at their maximum potential).
The report argues that those on the brink, the contemplators and growers must be the main targets of policies that encourage business ownership and growth.
1. High costs: Nearly 26,000 businesses are intentionally holding back growth to avoid paying the 20% VAT bill, business rates are crippling the high streets, and off-payroll working regulations (IR35) have increased the freelance tax bill by £1.5 billion.
2. Poor access to finance: The UK has one of the highest SME loan rejection rates in the OECD of 45%, driven by an increased reticence to lend to viable small businesses among major commercial banks.
3. Challenging economic climate. A collection of external shocks – from the pandemic to high energy prices following the Russian invasion of Ukraine – have resulted in SME interests rates that are the highest they’ve been in a decade, and left entrepreneurs with a negative economic outlook.
4. Fear of failure: The fear of failure rate in the UK is 20%
higher than the global median and the US. This is driven largely by concerns around loss of money, but also by fears of reputational damage. Just five UK universities rank among the top 100 for producing successful entrepreneurs, compared to ten from California alone.
5. Excessive bureaucracy: Time spent on administrative tasks costs the UK nearly £40 billion in lost productivity. Particularly bad is its poor infrastructural support for businesses, ranking in the bottom five globally on measures like planning and transport that support entrepreneurship. HMRC inefficiencies have also negatively affected entrepreneurship.
1. To address the cost burden:
1.1 The VAT threshold should be lowered significantly and replaced with a tapered rate.
1.2 Business rates should be reformed to make them fairer and more efficient.
1.3 HMRC should simplify its self-employment determination criteria and institute an IR35 ceiling.
To improve access to finance:
2.1 A new wave of commercial bank-backed Community Development Finance Institutions (CDFIs) should be introduced
2.2 The British Business Bank should transform its funding finder tools.
To manage risk:
3. Introduce ‘Business Startup Relief’ (BSR) to incentivise greater entrepreneurship
To tackle excessive red tape:
4. Councils and mayoralties should create expedited planning processes to help businesses secure new premises
1. High costs: Nearly 26,000 businesses are intentionally holding back growth to avoid paying the 20% VAT bill, business rates are crippling the high streets, and off-payroll working regulations (IR35) have increased the freelance tax bill by £1.5 billion.
2. Poor access to finance: The UK has one of the highest SME loan rejection rates in the OECD of 45%, driven by an increased reticence to lend to viable small businesses among major commercial banks.
3. Challenging economic climate. A collection of external shocks – from the pandemic to high energy prices following the Russian invasion of Ukraine – have resulted in SME interests rates that are the highest they’ve been in a decade, and left entrepreneurs with a negative economic outlook.
4. Fear of failure: The fear of failure rate in the UK is 20%
higher than the global median and the US. This is driven largely by concerns around loss of money, but also by fears of reputational damage. Just five UK universities rank among the top 100 for producing successful entrepreneurs, compared to ten from California alone.
5. Excessive bureaucracy: Time spent on administrative tasks costs the UK nearly £40 billion in lost productivity. Particularly bad is its poor infrastructural support for businesses, ranking in the bottom five globally on measures like planning and transport that support entrepreneurship. HMRC inefficiencies have also negatively affected entrepreneurship.
1. To address the cost burden:
1.1 The VAT threshold should be lowered significantly and replaced with a tapered rate.
1.2 Business rates should be reformed to make them fairer and more efficient.
1.3 HMRC should simplify its self-employment determination criteria and institute an IR35 ceiling.
To improve access to finance:
2.1 A new wave of commercial bank-backed Community Development Finance Institutions (CDFIs) should be introduced
2.2 The British Business Bank should transform its funding finder tools.
To manage risk:
3. Introduce ‘Business Startup Relief’ (BSR) to incentivise greater entrepreneurship
To tackle excessive red tape:
4. Councils and mayoralties should create expedited planning processes to help businesses secure new premises
Co-author of the report Shivani H Menon said, “Too often decisions for most British businesses are about simple steps like hiring the first employee or finding enough funding to open a high street shop front. Tackling Britain’s long tail of low productivity will require businesses of all shapes, sizes and sectors to grow. ‘The British Entrepreneur’ pinpoints which groups need support to grow and how they can do so quickly.”
Co-author of the report Andrew Barclay said, “At YOPA – the company I set up – we didn’t just create a single business, we ran local franchises to help create mini entrepreneurs around the country. I saw first-hand how if we help people a little, they can help themselves a lot. To help turn the budding entrepreneurs into real ones, this report proposes a series of economic reforms to help recapture Britain’s entrepreneurial lead.”
Your contribution will help fund cutting edge research to make the country a better place.
