Lower Costs To Boost Startups

The UK needs to do more to foster its start up culture, a new report claims.  

The British Entrepreneur has been put together by UK Onward, a thinktank devoted to developing ideas and policies aimed at helping UK businesses grow at home and abroad.  

The report outlines the challenges facing those planning on starting a business and entrepreneurs that have already taken the plunge. It also lays out a series of recommendations to address some of the most difficult problems facing young companies.  

The report states that:

A lethal combination of high costs, poor access to finance, harsh economic conditions, a uniquely high fear of failure, and excessive red tape are holding back entrepreneurial Britain.

This is important, given the prevailing trends that suggest starting up a business is becoming harder, something that’s reflected in the numbers:  Until the Covid pandemic, entrepreneurship had been steadily increasing. Self- employment rates increased by a quarter in the decade up to 2020 and the business population expanded by a third. But the pandemic saw a marked decline in business creation that is yet to be reversed. There are currently 425,000 fewer businesses and 734,000 fewer self-employed individuals than in 2020.  

As to the underlying causes, the report identifies five factors holding back entrepreneurial Britain: 

1. High costs: Nearly 26,000 businesses are intentionally holding back growth to avoid paying the 20% VAT bill, business rates are crippling the high streets, and off-payroll working regulations (IR35) have increased the freelance tax bill by £1.5 billion. 

2. Poor access to finance: The UK has one of the highest SME loan rejection rates in the OECD of 45%, driven by an increased reticence to lend to viable small businesses among major commercial banks. 

3. Challenging economic climate. A collection of external shocks – from the pandemic to high energy prices following the Russian invasion of Ukraine – have resulted in SME interests rates that are the highest they’ve been in a decade, and left entrepreneurs with a negative economic outlook. 

4. Fear of failure: The fear of failure rate in the UK is 20% 
higher than the global median and the US. This is driven largely by concerns around loss of money, but also by fears of reputational damage. Just five UK universities rank among the top 100 for producing successful entrepreneurs, compared to ten from California alone. 

5. Excessive bureaucracy: Time spent on administrative tasks costs the UK nearly £40 billion in lost productivity. Particularly bad is its poor infrastructural support for businesses, ranking in the bottom five globally on measures like planning and transport that support entrepreneurship. HMRC inefficiencies have also negatively affected entrepreneurship. 

Having laid out those key drag factors that hinder current and aspiring entrepreneurs, the report suggests a number of reforms that would go some way to easing the burden and releasing more start up energy. The recommendations include:  

  1. To address the cost burden: 

1.1 The VAT threshold should be lowered significantly and replaced with a tapered rate. 

1.2 Business rates should be reformed to make them fairer and more efficient. 

1.3 HMRC should simplify its self-employment determination criteria and institute an IR35 ceiling. 

  1. To improve access to finance: 

2.1 A new wave of commercial bank-backed Community Development Finance Institutions (CDFIs) should be introduced 

2.2 The British Business Bank should transform its funding finder tools. 

To manage risk: 

3. Introduce ‘Business Startup Relief’ (BSR) to incentivise greater entrepreneurship 

To tackle excessive red tape: 

4. Councils and mayoralties should create expedited planning processes to help businesses secure new premises 

Co-author of the report Shivani H Menon said, “Too often decisions for most British businesses are about simple steps like hiring the first employee or finding enough funding to open a high street shop front. Tackling Britain’s long tail of low productivity will require businesses of all shapes, sizes and sectors to grow. ‘The British Entrepreneur’ pinpoints which groups need support to grow and how they can do so quickly.” 

Young and growing businesses need time, patience and luck to succeed. They also need high quality advice and support from their professional partners. That’s why at Paul Beare Ltd we offer a full range of accounting services, from tax and payroll to accounting and banking