The UK start-up revolution shows no sign of ending. Last year nearly 660,000 companies were established, up from 608,000 in 2015, according to the Centre for Entrepreneurs, a think-tank. This year it looks likely that the record will be broken again, according to the CfE’s Startup Tracker.
“Other than the US, the UK is unrivalled as a place to start and grow a business,” says Simon Rogerson, chief executive of Octopus and overall winner of this year’s EY Entrepreneur of the Year UK award, alongside co-founder Chris Hulatt.
Some observers attribute the positive numbers to government-sponsored initiatives introduced after the financial crisis in 2010 to encourage people to set up businesses.
The coalition government backed StartUp Britain, a business-led campaign launched in 2011, which sponsors the CfE’s work, and introduced or increased tax breaks for investors and owners of small businesses.
It also set up a Start Up Loans scheme in 2012, which has handed more than £300m of loans to more than 46,000 start-ups through the British Business Bank, a government-owned development bank. Statistics compiled last year by the government show the number of businesses has jumped by 2m since 2000, rising from 3.5m to 5.5m. However, most of these employ fewer than 10 people and a rising proportion are sole proprietorships.
Some people question government commitment. The prospect of leaving the EU worries many SMEs, with their biggest concerns being labour shortages arising from potential curbs on EU immigration, and possible tariff barriers.
“I have no doubt that people are sitting on their hands waiting to see what happens. We are bound to see some sort of slowdown,” says Guy Rigby, head of entrepreneurs at Smith & Williamson, the professional services firm. He adds, though, that he believes any downturn will be shortlived.
Mr Rigby’s confidence does not appear to be widely shared. Prime Minister Theresa May has alienated many businesspeople with proposals to increase corporate governance and curb excessive boardroom pay. In March, Chancellor Philip Hammond had to backtrack on raising taxes paid by the self-employed after criticism that he was penalising those who were taking the risk to work for themselves.
Emma Jones, co-founder of StartUp Britain and head of Enterprise Nation, a membership group for small and medium-sized enterprises says the political climate has worsened. She says the Treasury does not like self-employment because they find it hard to measure.
According to the Institute for Fiscal Studies, a think-tank, people who are self-employed pay an average of £1,240 less tax per person per year than an employed person. If they incorporate and contract out their skills, that figure increases to £9,040 because tax on corporate dividends is lower than that on income. The self- employed miss out on some state benefits, however. “The Treasury doesn’t understand the risks people take to do it,” says Ms Jones.
Some are also alarmed by reports that the government is planning to further limit tax breaks for investment. Proposed changes could affect the Enterprise Investment Scheme, which has persuaded wealthy investors to pump billions into small companies.
Since 1994, EIS and its sister initiative the Seed Enterprise Investment Scheme have provided about £15bn in funding to 30,000 businesses. Mr Rigby says he would like to see companies receive similar tax breaks for investing in start-ups, a scheme scrapped in 2010. “We should be doing more in a co-ordinated way between the private and public sector. We need centralised leadership — like the Small Business Administration in the US — focused on making Britain the perfect place to start and scale up,” he says.
Ms Jones says that after a hiatus the government is consulting entrepreneurs again. She attends a monthly meeting at 10 Downing Street with Jimmy McLoughlin, Mrs May’s business adviser. “They are listening,” she says.
Margot James, the small business minister, has also started a scale-up task force to pinpoint measures to help companies. However, despite the achievements and the record growth in the number of companies, some believe there could have been more progress.
Mark Hart, an Aston University professor who runs the Enterprise Research Centre, says the government should be investing more to help the most promising start-ups. He says: “The UK’s productivity puzzle remains as seemingly intractable as ever. Despite record levels of business start-ups, the majority of our businesses do not grow.
“Too many of these businesses do not create jobs or do anything for UK productivity. We have long had a problem with turning start-ups into high growth companies.”
Prof Hart points to inconsistencies in government policy as a particular problem, including the 2011 decision to close Business Link, a support network.
The regional development agencies that delivered the service were also scrapped, to be replaced in England by local enterprise partnerships (LEPs), expected to operate on a fraction of the budget. The LEPs spawned growth hubs to deliver business support alongside the central Business Growth Service, but that too was closed in 2015. “We need to let these things settle down and leave them be,” says Prof Hart.
He says it is too early to assess the success of current government-sponsored initiatives but adds that they need more resources. LEPs “rely on businesses coming to them. They need to go out and find the businesses”.
Prof Hart says one school of thought is that the best thing a government can do is set low taxes and get out of the way. In 2015, he tracked all the businesses set up in 1998 and identified the top 2,000.
They employed a total of 110,000 people with £16bn of sales. On average they employed 55 people, with turnover of £8.5m.
“Many of them have had no help from government. The most successful entrepreneurs just get on and do it.”
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