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George Osborne commissioned a study and survey by the European School of Management, the UK’s second ranked business school, into the UK’s environment for enterprise. It reported yesterday but the media doesn’t seem to have shown an interest despite it calling for:

  • A simpler tax system with lower Corporation tax rates and more incentives for reinvestment in new businesses.
  • Mentoring schemes for young entrepreneurs and more focus on business
    skills in schools, including encouraging students to set up mini
    companies.
  • A national system of "dragon’s dens" to improve
    financing for growing businesses by making it easier for business
    angels to invest as syndicates and setting up a virtual marketplace for
    unlisted investment opportunities.

Interestingly, Osborne pretty much endorsed the findings:

"These recommendations provide a blueprint for making Britain the
enterprise capital of the world with simpler taxes, lower tax rates,
less regulation and a generation of young people with the skills they
need to start their own business."

There’s hope of catching the Celtic Tiger yet! Download the report in full or click continue to see bullet points of the main findings.

As part of the research, the authors conducted a survey of 140 entrepreneurs. Key findings include:

Tax

  • Increased tax rates would force 32% of the respondents to consider relocating their business away from the UK.
  • 79% of respondents think the tax system is too complex has a negative
    impact on their business through taking up managerial time
  • 85% of respondents indicated they have not applied for any tax credits in the last 12 months
  • 79% believe that radical, structural changes are needed in the UK tax
    system in order to encourage entrepreneurial activity.
  • 8% of
    respondents plan to sell their business in the next two years, but they
    would re-invest, on average only 36% of the profit
  • Taxation,
    regulations and human capital (recruiting staff, managerial expertise,
    skilled workforce) have increased their negative impact on business
    success over the last 12 years on average.

Skills

  • Two thirds of respondents thought that GCSEs and A levels do not prepare students for the labour market.
  • 84% thought that GCSEs and A levels do not prepare students well enough to start their own firm.
  • Employee skills shortages restrict business growth, particularly in
    terms of managerial skills (61%), communication skills (58%) and sales
    and marketing (54%).

Survey Details

  • 140 respondents participated in the survey, having 12 years of
    entrepreneurial experience (on average). In addition, 31% declare
    having revenues only from their business, 23% state they own more than
    one business and 12% invest in other small businesses. Two thirds have
    a higher education degree or above. In terms of age, 25% are aged 35 to
    44, 34% are aged 45 to 54 and 27% are aged 55 to 64. On average, it
    took them 7.8 years and 3.7 jobs between leaving full time education
    and starting a business. Finally, the average turnover of their
    businesses is £2.8 million, with 58% having a turnover less than £1
    million.

Growth and relocation risk

  • New companies have increasingly struggled to grow in size and the
    percentage of businesses that achieve an annual turnover above £1
    million five years after creation has decreased from 48% in 1997 to 16%
    in 2006.

UK losing out compared to G7 countries, companies struggle to grow

  • The authors find that the UK is losing out in terms of
    competitiveness in relation to other G7 countries, with lower rates of
    productivity and a widely perceived shortage of skills. The analysis
    shows that new companies have increasingly struggled to grow in size
    and the percentage of businesses that achieve an annual turnover above
    £1 million five years after creation has decreased from 48% in 1997 to
    16% in 2006.
  • Regulatory burden increasing
  • Red tape is
    frequently reported as the largest constraint to the growth of
    businesses – the total cost of the major regulations to business
    approved since 1998 totals £50 billion and is on the increase. Time
    spent on legislation has increased over the previous two years and this
    lost time is costly, particularly to smaller businesses.
  • Business owners are increasingly dissatisfied with the volume, along
    with the complexity and rate of change of legislation. Furthermore,
    “too many regulations” is the second most popular reason why owners
    wish to downsize, sell, or close their business.

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