The fragile new landscape for small business and entrepreneurs in Britain

Is Britain offering enough protection for its diverse pool of small businesses? Eduardo Skinner, CC BY-NC

Some three months after the unexpected election of a majority Conservative government, small business owners and entrepreneurs are beginning to get a sense of what the next five years holds. Expectations were high in the wake of what the previous Liberal Democrat-Conservative coalition did for entrepreneurship, but this might prove a rather difficult act to follow.

The Tory small business manifesto was essentially a continuation of initiatives introduced by the coalition. There was a sustained commitment to reduce red tape, to increase small business finance and to maintain a favourable tax regime, which are are all positive. Yet for a government which professes that small business are the lifeblood of the economy, their plans to support small business growth lack ambition.

Small beer for small biz

With the dust now also settled on the first Conservative party budget in 19 years, we can make out that there was remarkably little in it for small businesses and entrepreneurs. The cut in corporation tax and abolition of Class 2 National Insurance contributions are positive, but there were less favourable reforms to dividends that serve as a disincentive to enterprise and entrepreneurship. Creating a favourable business environment is key to achieving growth, ensuring the returns sufficiently outweigh the costs. Overall the recent budget was more a sleight of hand and contained fewer giveaways than might have been hoped (even during a time of austerity).

Beyond the manifesto and budget headlines, the question of which businesses win and lose is more complex. And the question of which businesses the Tory government want to champion as engines of growth is highly political. The Conservatives have shown an affinity for the technology sector, with an ambition to have more tech start-ups than anywhere in Europe . However, the reality is that government needs to support all small business and entrepreneurs, and realise that army of self-employed which comprise the growing number of entrepreneurs and small business owners are a highly diverse bunch.

In fact, record numbers of new businesses have been created – some 580,000 established in 2014 – and it has arguably never been easier to start a business. But that’s not the tough bit of entrepreneurship – and the emphasis now needs to be on realising growth rather than simply boosting the raw volume of start-ups. It is what the government does now in this area that will define its reign over Britain’s new entrepreneurial economy, and with it the country’s economic legacy.

Supporting growth

So given that the plans outlined in the budget and the Enterprise Bill will not in themselves stimulate growth, the persistent question is how to support those owners that are ambitious to expand their business. Perhaps, then, it is unsurprising that among David Cameron’s ministerial appointments was Anna Soubry as the UK’s first minister for small business. However, the new recruit and small business virgin has been uncharacteristically inconspicuous of late. Worryingly, a recent report from The Entrepreneurs Network also found that more than half of all British MPs are oblivious to the support available to smaller businesses and entrepreneurs. It calls into question whether improvements to the business landscape are really a government priority.

Green shoots? baigné par le soleil, CC BY-NC-ND

In practice, the support available is varied at best. Although progress has been made to ease financial challenges by supporting lending, the promise of targeted support for small business is patchier. This is in part due to its increasingly devolved nature, with Local Enterprise Partnerships responsible for delivery.

The government has made funding for Growth Hubs available through different sources such as the Regional Growth Fund and other sources. However, the nature of business support is likely to remain somewhat of a postcode lottery as different Growth Hubs offer different forms of support – they might target specific businesses rather than offer general support for all, for example.

Of course, growth need not only be domestic. Exports to potentially lucrative international markets offer a pathway to expansion for many businesses as well helping deficit reduction more broadly – and there is perhaps a clearer tale to tell here. In addition to the support through the Growth Hubs, UK Trade & Investment (UKTI) offers UK businesses advice, guidance and practical help to get the products overseas. For many entrepreneurs and small businesses, growing internationally requires additional capacity and different capabilities as well as a network of contacts. The government does seem to recognise this and has a stated commitment to double the level of exports by 2020.

Outlook for Enterprise

The Conservative government has hailed entrepreneurs and small businesses as the lifeblood of the economy, so expectations have rightly been high. Despite their pledges, and while many entrepreneurs and small businesses are no worse off, electing the Tories has not proved as business friendly as many small business owners and entrepreneurs had hoped. This may in part be attributed to George Osborne’s economic stewardship and commitment to reducing the deficit, but it does mean that there remains a question mark over the strategy to realise entrepreneurial growth.

Taxi for Osborne? Francois Lenoir/Reuters

This is in part due to uncertainty. The vexed question remains the in-out referendum on Europe. A Brexit would be potentially harmful for small businesses and not in the national economic interest, but it is the doubt which is the real killer. It will be so important to put this protracted question to bed so we can again enable small business owners and entrepreneurs to focus on doing business.

Given that the primary objective of the Conservative government is not to undermine a fragile recovery, they have not yet proved to be as pro-business as some might have expected – where there is investment there is risk, after all. However, if stability prevails, then expectation will continue to rise as small businesses look to feel the benefits of their vital role in the economy and cement their position at the heart of business policy.