Entrepreneurs are an asset to grow. The government must give them time to thrive
This piece by Michael Hayman originally appeared in City A.M, see here
“Energy is eternal delight.” Heed the words of William Blake, because entrepreneurial energy is the dynamo that has powered the UK economy and transformed the business scene in recent times.
The worry has to be that this is not a year that suggests this energy is eternal, and the mistake is to assume the resilience of entrepreneurs as a given.
Small firms have become the economic front line. They form 99 per cent of private sector businesses, contributing to around half the turnover of UK businesses – £2.2 trillion in 2019.
But with the coronavirus they have paid a high price. Last month Office for National Statistics (ONS) data showed that the UK officially fell into recession for the first time in 11 years.
Behind that figure is a multitude of untold stories of small business deaths. ONS data on the business impacts of the early phase of the virus showed that 16 per cent of businesses had closed or had paused trading.
Big company woes tend to be easier stories to tell, but the struggles of our 5m small businesses cannot afford to become the forgotten battle.
And as the government considers its next salvo in the economic fight against the virus it needs to focus on the creation of an enterprise generation.
That means stimulating small firms and start up formation, creating the conditions for the UK to excel in the market conditions of the future.
The spectre of mass unemployment was the catalyst for the furlough scheme to buy time and save jobs. But as this vital lifeline is withdrawn, there is an essential mindset shift that has to happen as well.
One that not only pursues the mitigation of the risk of job losses but one that increasingly supports the creation and sustaining of more growth firms, one that stimulates new business formation and one that creates more new jobs in their wake.
The flip side of business deaths is business births. Companies House data showing that “the number of incorporations in the second quarter of 2020 increased by 6,139 (3.6 per cent) compared with the same quarter of the previous year. This is the largest quarter two year-on year-increase since 2012.”
Accelerating this trend could be an important milestone in the fightback. In this regard the Budget this autumn is an opportunity for the chancellor to place his bet on that future by backing entrepreneurs.
A big decision will be which tax levers to start pulling. To say that this has caused high anxiety amongst business owners is an understatement. Not least because to think of entrepreneurs as a tax target misses the point that they are an asset to grow. But to do this the government must buy them the time to thrive.
Other countries have sovereign wealth funds. We do not. Some are using that finance to stimulate massive advances in the green economy and the net zero ambition. We could be.
When I co-founded StartUp Britain as a response to the last recession we worked with the then enterprise advisor to the Prime Minister, Lord Young, to push hard for start up loans as a means to back small firms.
The risk, we were told at the time, was that they would be a black hole in public finances as the firms would default on a mass scale. But they did not, and this quiet success story could be scaled (a point Lord Young is making now) to be an accelerated part of the governments fight back arsenal.
And stimulating the scale up culture by ensuring the focus and finance on the firms that have the greatest potential to grow is perhaps the most tantalising prize of all – backing the job creators.
The research institute Nesta once called these firms the vital six per cent because they created 54 per cent of all net new jobs. And that really is the opportunity, not just the protection of jobs but the creation of new ones.
The second experience of StartUp Britain was a shared belief – held by leaders in both the public and private sectors – that the future for the UK would be delivered by what was called the ‘entrepreneur-led recovery.’ But that it would have to be fought for.
Then economic woes were the catalyst for many to try their hands as their own boss. Much was made of the idea of making a job not taking one. It was an impetus that made the UK one of the start up capitals of the world and rightly created a debate about how start could then lead to scale.
This is the energy and it is one we need to harness now – accelerating business formation, stimulating scale, and the creation of new jobs for a new chapter of change.
But the task of building and sustaining this is tough and the government might heed the words of a poem a friend shared with me that, “two things stand like stone: kindness in another’s trouble; courage in your own.”