Business Speak

June 29, 2012 6:43 pm

Tax breaks for consumer excellence

Improve quality and quantity of enterprises, says Paul Lindley

The UK is experiencing a devastating period for business deaths, with figures from Experian telling us that 2,112 businesses became insolvent in March alone – nearly 70 a day.

Most of these are small firms and young businesses. So, while David Cameron is rightly urging aspirant entrepreneurs to “go for it”, the converse message about potential failure is equally strong.

We need practical and efficient ways to support the 4.5m businesses in the UK today, but we need sustainable measures that improve the quality – as well as the quantity – of enterprises.

One measure I believe could make a real impact is a tax relief for small businesses that create and maintain a good relationship with their consumers.

As budgets shrink and consumer confidence falls, brand-building, careful research and high-quality customer care are factors that business owners cannot afford to ignore.

What I am proposing is a “consumer excellence relief”: a 200 per cent tax allowance on activities that develop, maintain and improve products consumed by the public.

This ambition is partly driven by personal experience. I set up Ella’s Kitchen – my organic baby food company – in 2006, inspired by the consumer need for a product that simply didn’t exist.

In the early days, I learnt most by talking to my potential market – to understand what children wanted to eat. By establishing a relationship with customers, the product development looked after itself.

Six years later, the fundamental drivers of my business remain the same. Consumer insight and market research translate not only locally, but internationally.

We need to incentivise start-ups and SMEs to build brands that compete globally and ensure they stay ahead of the pack by paying careful attention to their consumers.

Under my proposal, SMEs would have to prove that they were increasing expenditure on “consumer excellence” activities. This might be something as simple as subscribing to industry reports, magazines and periodicals. Alternatively, it might mean running focus groups, or conducting online surveys.

It is now easier than ever to track customer concerns and identify areas where consumer needs are not being met. Social networking sites such as Facebook and Twitter can give companies a valuable insight into consumers’ minds. It can be expensive and time-consuming to maintain this dialogue. Consumer excellence relief would subsidise the costs of preserving such customer communications.

My proposal would allow British businesses to become more vigorous and robust. First, it would help them remain at the forefront of a globally competitive market, adapting and innovating their products and services in response to thorough market research. Second, they would be able to identify where the next consumer “need” was, as the market evolves, grows and expands.

We have already seen the positive effects of targeted tax relief for customer-focused activity. Research and development tax relief encourages long-term financial incentives for technical innovation. It has existed for 10 years and been used by 8,000 companies, claiming back more than £1bn and supporting £50bn of research and development. This shows tax relief can change investment behaviour.

We need consumer excellence relief to encourage more businesses to "go for it" – and ensure that, if they do, they don’t simply become statistics in the battle of attrition small businesses are facing.

Paul Lindley is founder of Ella’s Kitchen, a baby and children’s food brand

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