By Max Clarke
“By now the lessons from the era of boom and bust may be familiar,” began Business, Innopvation and Skills Minister Mark Prisk at a speech for the Federation of Small Business (FSB) in Liverpool today, — “but it is vital that they are repeated and learned.”
In his speech, Minister Prisk outlined to the FSB the various policies that have been introduced in order to foster entrepreneurialism in the UK; including the Enterprise Finance Guarantee scheme, and the New Enterprise Allowance.
“Growth”, continued Prisk, “was too reliant on a consumer boom led by excessive household borrowing, a property bubble and an overweight banking sector. The subsequent collapse and recession left the country with a massive budget deficit and great vulnerability to shocks of the kind we are now experiencing as a result of higher oil and commodity prices.
“The government’s biggest task has been clearing up the deficit: a big unpopular but essential task. And I am grateful for the support of the FSB in making the difficult decisions involving deficit reduction. I don’t need to tell a business audience why preventing UK PLC going bust is a vital first plank of any growth strategy.
“There are many facets to our plan for growth. Today I want to talk about the role of smaller companies. SMEs account for 99% of all UK businesses, half of all private sector output and employment. Micro businesses (under 10 employees) account for over a fifth of private sector turnover, and over a third of private sector employment.
“But their importance goes beyond sheer numbers. They also embody the sort of capitalism that we should be promoting. Risk taking. Innovative. Flexible. Geographically balanced.
“And one reason why SMEs are important in policy terms is that they are disproportionately affected by the institutional failures or regulatory costs of government.
“A large company may be able to afford the dedicated compliance and HR personnel to cope with the large volumes of regulation that are part of commercial life. For the smaller firm, this may mean the owner herself having to waste hours on form filling.
“And smaller companies are also the first victims of capricious or overcautious behaviour from banks. I was concerned to read how lending conditions for smaller companies are deteriorating again. According to a recent survey, nearly a third have reported an increase in borrowing costs, up from a sixth.
“That is why I supported a deal with the banks that included a special commitment to increase SME lending by £10 billion. It is crucial that this is delivered and I look to you and bodies like the BCC to keep us briefed on progress. We have made it clear to the banks that we look to them to finance SMEs on reasonable terms
“Let me know if they don’t deliver. I won’t let the matter rest until I am happy that we have a financial system suited to the needs of our smaller company sector.
“And the government will help directly where it can; through our Enterprise Finance Guarantee which helps thousands of small companies get a loan; through Enterprise Capital Funds for those that need equity to grow; and through community finance interventions like the Big Society Bank.
Changing the entrepreneurial culture
“We also mean to change the culture in Britain so that starting up and growing a business is straightforward. Britain is full of potential entrepreneurs. But this spirit has been undermined. Over half the jobs created in the last decade were related to the public sector. And for many years it was easier to make money through property speculation than genuine entrepreneurship. Our entrepreneurial ambitions should be higher.
“Such gaps open up at an early age so we are focussing on education. We have a broad programme extending from school to university and beyond, and plan to expand this in our strategy for enterprise in education, to reach hundreds of thousands of young people each year.
“In our Coalition Agreement we promised to help the unemployed straight into business through mentoring and access to start up loans. Now we are delivering — through the New Enterprise Allowance, a programme combining mentoring and loans. It will first be targeted at areas likely to suffer most from public sector cuts, before going nationwide in the Autumn.
“Through this programme up to forty thousand unemployed people should be helped over the first two years. The trailblazer is right here in Merseyside, working with the St Helens Chamber of Commerce.
Making the UK the easiest place to start and grow a business
“I know that we need to make things easier for business. We stand 17th in the world for ease of starting a business. The country that comes first is New Zealand. Whereas we undergo six procedures and on average take thirteen days, for them it is: one procedure, one day.
“New Zealand is not the Wild West. We should be better at this. Our government has made a start. On 6 April Companies House will launch a new web incorporation service which will enable people to set up simple company within a few hours for £18; this is an important part of our “one click” agenda.”
Getting Britain trading
“Britain has underperformed when it comes to breaking into markets that will be driving global growth. It still amazes me that we export more to Ireland than all the BRIC nations. I have myself visited China, Brazil, and Russia – and India twice, to drum up trade and draw attention to the excellent opportunities available.
“But let’s face it: Britain can’t restore its leading position in export through sheer volume of ministerial visits. Today, companies are born global. A laptop and the internet means customers can be anywhere in the world. Only a quarter of SMEs are exporting — we think that could be improved. It will need their energy and ambition to breaks into new markets. And, of course, UKTI is there to support small firms wanting to take that first step.
Regulations — what we are doing on employment
“Perhaps the most important step a business ever takes is to hire its first employee. Balancing worker and employer obligations is difficult. The needs of flexibility on one side and security on the other have to be taken seriously.
“Too much uncertainty damages the incentive to make the relationship work. Despite the deepest recession since the 1930s, unemployment rose far less than in previous recessions, a real tribute to the flexibility shown by workers and managers — including, I am sure, many here today.
“This flexibility will define our approach to the labour market. And we will make it clear to everyone that working for a smaller company is not a second-best option, but a good choice.
“That is the reason why we launched a major review of employment laws: maximum flexibility for employers and employees within a competitive business environment
“Sometimes the problem is that businesses don’t know the rights they already have. This is what the Employer’s Charter is about: giving you confidence about what you can already do to deal with employee issues.
“And we have heard your concerns that excessive recourse to employment tribunals damages workplace relationships. Some argue that it is too easy to make unmerited or vexatious claims, and the whole system discourages people from resolving things together.
“The actual cost of going to arbitration is significant – £4000 per claim, plus an untold amount in worry and time wasted. It also contributes to understandable caution on the part of the manager, who might hold back from hiring, fearful of the risk of a drawn out tribunal.
This isn’t good for businesses or workers.
“We share this concern, and so plan reforms that will encourage earlier resolution of disputes, more use of ACAS, and measures to weed out vexatious claims.
“As part of this we are consulting on increasing from one year to two the period before employees can bring an unfair dismissal claims. At a time of still high unemployment, our priority is to restore the confidence to hire.