Want economic growth, Chancellor? Stop making small businesses pay for it

Britain makes it easy to start a business – then punishes you for growing

THE UK IS ONE OF THE EASIEST PLACES TO START A BUSINESS BUT NOT TO GROW ONE.

We’ve had all the fun of the Labour Party conference and now attention is firmly on the Chancellor and his Budget on 28th October. There’s 3.5 weeks to keep hoping that he’ll do something that will help your business not only survive but thrive. The UK has cracked the first mile of entrepreneurship with fast registration, low barriers to entry, simple legal structures and a culture that celebrates starting up. However, that’s as far as it goes for many.

When it comes to growing a business, the UK has one of the hardest environments in the developed world. The Chancellor won’t get the growth he wants and needs unless he changes that environment. Entrepreneurs are the people he needs to encourage.

Fix the Cost Burden That Crushes Firms Before They Grow

Starting is cheap. Growing is expensive. Small firms face high costs whichever way they turn, from employing young people, to adopting technology, to compliance with the huge raft of legislation and regulation, mostly suitable for bid business bu completely disproportionate for small and micro firms stating out.

Business rates are one of the most punitive in Europe), energy costs are extortionate and rising daily, insurance costs go up as risk rises, employer NICs have stopped entrepreneurs hiring to grow, complying with all the rules takes not just money but time out of running the business. At the same time the entrepreneur is taking all the risk, with their time, their money, relationships, homes and health. There’s no one to cover sickness, holidays, childbirth and childcare. These costs and risks rise before revenue does leaving nothing for investing in growth.

What Needs to Change

We need a small business NIC cut for the first 5 people recruited; reform of business rates for micro firms, a cap on energy standing charges for small commercial users and a simplified regulatory regime for firms under 20 people.

The tax System has to be simplified to make it growth‑friendly, rather than growth‑punishing. The UK tax system punishes firms at the exact moment they try to grow. The VAT cliff edge at £90k turnover leads entrepreneurs to delay growth, so as to avoid the additional admin that goes with registering and managing VAT. There are complex rules for small exporters and the R&D rules exclude micro innovators. The complexity of the system is such that without a degree in tax law you are prone to making mistakes which HMRC assumes are deliberate and punishes. Simplify, simplify, simplify and reward growth.

Small firms in construction, manufacturing, logistics and retail are stuck behind slow planning approvals, delays in getting connected to the grid (which to be fair the Government has recognised and promised to sort through the new Great British Grid)), poor transport and patchy digital infrastructure. These have a serious negative impact on small businesses and their local economies.

Government and business cite access to finance as one of the biggest barriers to entrepreneurship. We need to make is possible for the right kind of funding to reach the right businesses at the right time. We have world‑class finance, but it doesn’t reach micro businesses.

Finance

Banks are risk averse, lending decisions are slow, rejections aren’t explained, entrepreneurs are often expected to put their homes on the line and there’s limited options for micro businesses with patchy investment across the UK regions.

We need a national micro business growth fund and better access to private markets for small businesses.

People

Please make it possible to build a team. There are many successful single person businesses, but they rarely become high growth without help. Hiring people is the biggest barrier to growth because of high labour costs, skills shortages, an apprenticeship system that’s too complex and a lack of support for first‑time employers who, without the benefit of HR departments are expected to follow the same rules as big corporates. The rules need to be proportionate.

Procurement

In the rest of the entrepreneurial forest small firms face unfair procurement rules, complex tendering that puts them off trying, compliance demands on the part of big‑companies as well as Government departments, and a powers imbalance that favours the bigger customer. The government must deliver on its promise of more work going to small firms, with simplified tendering for contracts under £1m, fair supply chain rules and small business friendly digital standards.

Starter for 10

The UK is brilliant at helping entrepreneurs start businesses, but terrible at helping them grow. Small and micro businesses don’t need motivational speeches or startup festivals. They need lower costs, proportionate rules in a regulatory system designed for firms under 20 people, access to capital and skills, and fair and simple procurement processes. Simplifying the tax system would be a huge step forward and one of the most difficult given the 23,000-page rule book that’s currently in use. However, just because it’s difficult doesn’t mean it shouldn’t be done and we’ll never get there if we don’t start.

If the UK fixes these issues in collaboration with the small and micro businesses, it will get by-in from the entrepreneurs who really can grow the economy and it will become, not just the easiest place to start a business. but the best place to grow one.