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Elphicke Charlie LargeCharlie Elphicke is the Member of Parliament for Dover and Deal. Follow Charlie on Twitter.

Small businesses form the backbone of the UK’s private sector, accounting for
six out of ten jobs. Yet how can we add to their number with more business
start-ups?

The Government has been active in promoting new small
businesses  – from introducing the New Enterprise Allowance to the start
up loan scheme. There has also been a marked increase in start ups and self
employment. Since the election, the number of people registered as self
employed has increased by 335,000, while the number of start-ups has risen from
29,193 in May 2010 to 47,500 in March 2013.

 

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These figures are important because business start-ups matter. OECD
studies have shown that business start ups play a powerful role in economic
growth. Research also shows a strong relationship between the level of
entrepreneurial activity in a country with economic and financial
growth.[1] Start ups are the springboard for growth, and more measures
could be taken to encourage their expansion.

The Government has taken some
really positive steps, yet there is scope to consider further reforms to
encourage more business start ups:

A “get set and grow” scheme

The 'get set and grow' scheme would give business start ups a two year holiday
from business burdens. These would include a holiday from corporation tax
payments, national insurance contributions and regulatory filings together with
a lighter touch employment law regime. This would be available to businesses
until they have either been trading for two years, have a turnover greater than
£500,000 or employ 10 or more workers.

In the 2012 survey of small businesses by the Federation for Small Business
(FSB), 53 per cent of small businesses reported that employment taxes such as PAYE
and NI are a barrier to success. 51 per cent of small businesses reported that
corporation tax and VAT also act as barriers to success. A further survey by
the FSB that looked into the barriers of taking on more staff found 25 per cent of
small businesses said payroll taxes were a consideration while 30 per cent said
employment laws put them off taking on more employees.

Asked what would help 53 per cent said it would help if the Government offered tax breaks, and 32 per cent said they would hire more people if there was a temporary exemption from some
employment legislation.

So why not try it? Given the role of start ups in driving growth, employment
and innovation, entrepreneurs who wish to start new businesses should face as
few barriers as possible.  A “Get Set and Grow” scheme would help address
this need.

Widen the New Enterprise Allowance and start up loan scheme

 The Government introduced the New Enterprise Allowance in 2010 for
unemployed individuals to apply for up to £2,000 to start a new business and
receive assistance from a business mentor. However the scheme does not tap into
the entrepreneurial spirit of those who are currently in work and who may have
the next big business idea. The New Enterprise Allowance scheme should be
widened in scale to capture the talents of all the people.

The Government also set up a “Start-Up Loan Scheme.” This scheme provides loans
and mentoring to young entrepreneurs aged 18-30. While this has the advantage
of being available to those who are employed, the average loan amount is only
£5,400, which may be too small for start-up capital. This could be raised to at
least £10,000.

Another criticism is that not all of the loan is given as cash,
some is delivered in the form of mentoring. This can be important for some new
businesses. Yet where the applicant already has experience, it should be
possible to allow for a higher level of cash instead of mentoring. In addition,
Lord Young’s idea of wanting these loans available to people over 30 is a good
one and should be taken up.

There should also be a reform of non-compete clauses. People should be able to
leave their current employers as easily as possible. In some parts of the US
these clauses are banned or restricted and the UK should follow suit to enable
more competition and less restraint of trade.

Reduce the threat of tribunals to businesses

In the year 2011/12, there were a total of 186,300 claims made to employment
tribunals. The Government has increased the qualifying period for unfair
dismissal from one year to two years. This was much needed move more could be
done, particularly for small businesses.

From the FSB survey, 21 per cent said that litigation/employment tribunals act as a
barrier to hiring more staff. Another 7 per cent said that a Government measure which
offered easier advice on dealing with employment queries/complaints/disputes
would encourage them to hire more.

The maximum award an industrial tribunal can make is currently £87,700. With
median earnings at £26,500 this is clearly too high. The previous Labour
Government increased the maximum level from £12,000 to £50,000 in 1999, at a
time when average earnings were £14,888. The award has been increased by
inflation ever since.

The maximum award should be cut to the same level as
average earnings particularly where a claim is made against a small business.
Currently, only around 10 per cent of tribunal awards are greater than average
earnings, so very few claimants would lose out. Yet it would boost job creation
by small businesses.

Broadband focus on start ups and SMEs

The Government has set out a plan to delivery super-fast broadband to at least
90 per cent of premises in the UK. However, the rollout of this has been pushed back
from the original target date of 2015 to 2017.  The 95 per cent target that most
affects rural areas now won’t be met until 2018.

Recently the Government set up a consultation into a Connection Vouchers
Scheme. This would see £90 million of funding allocated to cities which are
part of the Super-Connected Cities Programme to help SMES pay for one-off
broadband connection charges. Yet most businesses in these areas will already
be connected and the real problem is those businesses not in these areas. 
The problem lies in areas that are more rural or far flung. The Government
should consider widening the consultation so that SMEs from all areas can apply
for the vouchers, with priority given to those SMEs that are not already
connected to broadband.

The Government should also consider using the rollout of superfast broadband to
schools as a basic infrastructure for businesses as well. Schools could have
the right to sell/lease their broadband to nearby businesses, with any profits
being allowed to be kept by the school for projects.

Broadband is one of the most important infrastructure assets for SMEs and for
unlocking regional growth. Many SMEs are in places far from any population
centre. The Government should use the rollout of superfast broadband to schools
as a basic infrastructure for businesses as well. Schools could have the right
to sell/lease their broadband to nearby businesses, with any profits being
allowed to be kept by the school for projects.

Conclusion

When it comes to encouraging and supporting new business start-ups, the
Government should leave no stone unturned. Burdens such as corporation
tax payments, national insurance should be scaled back to help start-up
businesses get established and then grow. The “Get set and Grow” scheme
could be a real boost to encourage more start-ups. Grants and loans to
start up companies and/or individuals should be more widely available and the
criteria expanded. Finally the Government should take the opportunity to set
out a more comprehensive and better plan to deliver small-business -friendly
super-fast broadband across the UK.

These measures will not just cost the Government large sums. Yet they could
have a strong impact on growth – especially for regional growth in the North,
Wales and the South West.

[1] Klapper, Leora, Raphael
Amit, and Mauro Guillen. 2009. “Entrepreneurship and Firm Formation Across
Countries.” NBER Volume on International Differences in Entrepreneurship.

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