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Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School

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How the small Enterprise can fuel economic recovery

Ian Duncan Smith says ‘Get on the bus to find work’ this might work for some but for many they should stay nearer to home and create work.

The loss of around 500,000 jobs in the private sector due to government cuts is may be too pessimistic. Perhaps 100,000, over four years.  The slack will be taken up – but how?

The turnaround, recovery, the improvement of the balance of payments and growth will come from the hunger of people in private sector business. This hunger is a concept rather alien to many in government but it is what makes things happen in the commercial world, creates demand and jobs.

For all that, the government needs to rethink its support of businesses.

The Government needs to encourage enterprise as a central strategy – because SMEs, but particularly the small enterprises, are the backbone of the UK economy, employing as they do 52% of the UK workforce. There must be a tangible focus on supporting start ups. The SME’s have the capacity to hire regionally and locally in a way that larger organisations cannot. They also have the ability to hire and harness skills. These skills in SME’s can create new products and services with innovation and speed – two features that all too often atrophy in larger organisations – certainly speed is all too rare in big business. Speed will be a vital component of the ability of the UK economy to compete in the world. With China sprouting 15,000 engineering graduates a year and an economy that encourages copying of western products (quickly) we have to be smarter and fleet-of-foot. Small enterprise can do this.

The Government Business Secretary Vince Cable clearly knows this, as do the more enlightened members of the Government; but we need to make enterprise far easier to start. The most obvious area of help is with finance. Banks need to be far more imaginative and co-operative with enterprise. They act is if they are in the risk business but they are far from it.

Banks need to start seeing the small enterprise investments as exciting as opposed to a distress service, a chore to get through even. The government’s initiatives announced in late October all head in the right direction on this but we need to see the detail and the indication that the execution of these SME support measures will take place. This is no time for aspirations and rhetoric.

The PSR missed a trick in not offering tax breaks to banks who lend – especially high risk, to SMEs. A bank levy is fine but we need some levers to alter bank behaviour.

We also need large organisations to use their considerable wealth to fund more in the SME sector. Vodafone managing to shake off £6b tax by off-shoring might even be tolerable if a slug of that went to directly help the UK economy – especially the small enterprises. In reality, we need to offer corporation tax breaks for those that support an enterprise fund – one that is managed by the banks.

What does the end game look like? We could do far worse than copy the German economic model which is based so much on SME’s and manufacturing. Finance is strongly geared around supporting SME’s because they are the backbone not just of the economy but also of society. They provide employment at a local level which means far less regional unemployment back spots in Germany.

In the UK the employment picture is far too polarised to the south and away from such regions as the north east and Northern Ireland. There is no reason why this picture has to prevail long term

Business founders not only need greater enterprise investment support but also tax breaks. Tax breaks for employing people and major tax breaks on profits in the first five years, provided there is a certain level of re-investment. In the short term, tax revenue from start-ups may not be bumper but unemployment benefits will fall and the big society may even start to emerge at the business level.

Regulation needs to be waived in many areas of business. Local authorities and the Government’s procurement processes are great example of where this can be slashed. The buying process by government militates very strongly against the SME’s.  The requirement for many years’ accounts, ISO accreditation, health and safety certification, diversity policies and many, many more. This kills the chance for SMEs’ to supply government and serves no one well – except the paper suppliers.

It is not just the Government that makes it tough on small business. Big business can be equally bound up in red tape procurement process and deter SME’s as suppliers.

Employment law needs to be eased for SMEs’ too. The rights of employees and the propensity to use no-win, no-fee lawyers can be very damaging for small businesses. This really deters the hiring of people. It has been a significant factor in the growth of the contractor market. Why employ someone when you can contract them and reduce the responsibility to an acceptable level?  There are many people that love being business owners but too many do not enjoy being employers.

So the rise in employer national insurance contributions must of course be stopped. This is a cost that SME’s don’t need.

The Enterprise Finance Guarantee scheme should be extended and broadened to allow more enterprise to be encouraged.

Business should be the heroes of the land since they will be the employers and the social glue in many areas. Finally – business must be seen as attractive, fun, worthwhile, rewarding and community building. We live in a free market economy after all.


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