Lord Flight was Shadow Chief Secretary to the Treasury from 2001-2004 and led for the Opposition on the FSMA. He is now chairman of Flight & Partners Recovery Fund.
One of the biggest achievements
of the Thatcher Government was the encouragement of and revival of
entrepreneurship, and delivering the venture capital finance to support it – for
which Lord Young should take much of the credit. This Government has similarly sought to
encourage entrepreneurship. The
improvements to the EIS Scheme in terms of enlarging the size of companies
which qualify has been particularly helpful, essentially as it supports new
businesses which have survived, need more resources to grow and are more likely
The Government has sensibly
supported Capital Gains Tax Entrepreneurs’ Relief and it is to be hoped that
measures will not be introduced to reduce this.
The Government has also started to address the all important area of public sector business contracts for smaller companies where, historically,
both internal guidelines and the complexities of EU tendering requirements have
shut out small businesses. This is
particularly important with regard to the NHS, where much innovation is coming
through from small businesses. Albeit in
part the result of a difficult economic climate and shortage of jobs for young
people, it is extremely heartening to see a large increase in the number of
young people considering being entrepreneurs.
It is, therefore, disappointing
to find an element of long-standing, “Establishment”,
anti-business/entrepreneurship prejudices creeping in with the G8 “Transparency
and Trust” initiative. One of the
reasons why America has been more entrepreneurial than the UK over the last 100
years is that, in America. there has been no shame or financial penalties on the
relevant entrepreneur when a business fails, or an individual has to go
bankrupt. Henry Ford, Bill Gates and Walter
Disney experienced major setbacks or failures on their road to success. We need a culture in which the young people
taking part in the Government’s recently launched start up loans initiative
will continue to their second or third attempt if the first fails and not give
up “out of shame”.
An unsympathetic approach to
business failure is embodied in the suggestion that company liquidators should
be given the power to “sell on” the civil action liabilities of directors
following a company failure. This raises
the spectre of directors being pursued for their possessions by debt
collectors. While directors need to be
held to account, it is crucial that the balance struck is pro-entrepreneurship. All new enterprises involve substantial risk
and in the UK the failure rate has been high.
If an excessive portion of risk is loaded on to entrepreneurs and
directors then, as night follows day, this will end up discouraging
entrepreneurship. The risks in taking on
the role of being a director are already large; for small and medium size
enterprises with a high risk of failure it is essential that potential
financial sanctions resulting from business failure are not prohibitive.
Here there is also some conflict
within Government policy. Its efforts as
part of its growth strategy to encourage seasoned directors to participate in
the boards of mid-size businesses are to be welcomed, but will be undone if, as
a result, the Government’s new, proposed personal risks for directors render
the risk/reward balance of participating in such Boards unattractive. It is interesting to note that no comparable
disincentives are being proposed for Civil Servants whose policies fail, at
major expense to the tax payer, – such as the £18bn written off on the failed
Systems project for the NHS.
The UK needs a
pro-entrepreneurship culture like that of the US and it is disappointing and
unfortunate to see anti-entrepreneurship, Establishment prejudices creeping