Britain’s Chancellor of the Exchequer Rachel Reeves puts on gloves, as she and Britain’s Secretary of State for Science, Innovation and Technology Peter Kyle visit the Cambridge Biomedical Campus - Hollie Adams/WPA Pool
“Starting up a new business is a huge leap. But all those taxes, planning hassles and a reluctance to lend by banks mean it’s simply not worth the risk any more.”
These are not my words, but those of the entrepreneurs I interviewed for a new research report, The British Entrepreneur. They reveal exactly how fragile our entrepreneurial sector is. And that was before Rachel Reeves’ anti-enterprise budget.
Before the pandemic, entrepreneurship had been steadily increasing. Self- employment rates went up by a quarter in the decade before 2020 and the business population went up by a third. But Covid destroyed many businesses and there are few signs that any recovery is on the way – in fact, there are now 425,000 fewer businesses in the UK than four years ago. The British are uniquely risk-averse: over half of employees say a fear of failure is deterring them from setting up their own venture – a fifth higher than in other countries.
Why is that important? Because it is entrepreneurs who drive innovation, opportunity and economic growth. Every large company started life as a small business and without that flow of new business, our economy will be worse off.
Labour were keen to stress their pro-business credentials before the election. Expensive investment summits and private breakfasts with worthy business leaders were designed to provide reassurance that a Labour Government would be good for them. Last week’s Budget, however, showed their real intentions. Taxes on business are up, regulation of business is up and rewards for risking your money to create growth are down. Any one of these measures would be harmful to Britain’s entrepreneurial spirit. Together, they are likely to be disastrous.
What’s sad is that the ingredients for growth are there. There are over seven million people on the brink of starting their own new enterprise and many existing ventures keen to grow. From aspiring young tech entrepreneurs to local restaurant owners looking to expand to a second or third outlet, the appetite for growth is there, but all are faced with government-related barriers to that growth. Our respondents were crystal clear on what was preventing expansion: high startup costs, taxes, lack of funding options and endless red tape.
A government looking for growth would be focused on removing these barriers and harnessing that natural desire for growth. But instead we have the polar opposite.
Is the increase in Capital Gains tax going to generate excitement and positive sentiment among investors, enticing them to risk their money to fund new ideas?
Will higher national insurance costs help inspire the high street restaurant owner to push the button on that new branch with its requirement for more staff?
Do small business owners, operating on already wafer-thin margins really have sufficient excess funds to pay a large one-off cost for inheritance tax?
It is not just taxes that are going up. The increases to the minimum wage are another major extra cost for businesses. That may be fair enough when the economy is growing but post Budget is simply going to lead to lost jobs. Governments love the plaudits that come from hiking the minimum wage but they are not the ones that pay the price. It will have to be paid by companies. Worse still, with the minimum wage for school leavers rising by 16 per cent, it is this group that are most likely to lose their jobs.
Even before last week, confidence among existing and potential entrepreneurs was at a low ebb. The Budget is likely to persuade millions of people not to take the risk of starting or expanding a business. That will be Britain’s loss. Worse, for those entrepreneurs and investors able to look outside the UK, there are countless states across the world offering exactly the incentives to attract them, through flat taxes, digital nomad visas and a truly welcoming pro-business environment.
Britain is competing in a global marketplace for entrepreneurship. After this week’s Budget, the innovation and investment that could have happened here is more likely to go abroad. For example in Ireland and the Netherlands they have a scheme that reduces the income tax paid by start up businesses in their first year precisely to encourage those with jobs to become entrepreneurs.
I set up – and then sold – my own business, an online estate agency called YOPA a decade ago. I now work with and advise other young entrepreneurs doing the same. But, increasingly, I see many moving abroad. One former YOPA employee has set up an estate agency in the UAE that is already turning over millions and employing a large team. His business is thriving because it enjoys the very things Britain lacks: low taxes, lighter regulations, freedom to run your business as you wish and a political environment that prioritises individual enterprise.
Last week’s Budget will do nothing to attract back such entrepreneurs nor provide the stimulus for the millions of others to take that first step in creating their own ventures. That will be bad for Britain’s individual entrepreneurs and a catastrophe for our country.
