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George Freeman MP: --- Why we must unleash the little guys to drive economic recovery

GeorgenewpicGeorge Freeman was elected in 2010 after a 15 year career in start-up business in which he founded and raised over £50m for 5 new technology companies.  A founder of the, he chairs the innovation economy commission.  As Government adviser on life sciences to David Willetts mp at dept business he has been closely involved in shaping and implementing  the Government’s life science strategy and is now coordinating a parallel strategy for the UK agri-food sector. He has written and spoken widely on the need for bold measures to unleash a renaissance of enterprise and innovation to drive recovery.

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With a predictably fragile economic recovery, Labour 5%-10% ahead in the polls and a growing public doubt about whether we can have both public sector deficit reduction AND economic growth, George Osborne’s mid term budget in 40 days is critically important.  Given the fiasco of last year it is vital that we send a strong signal to boost confidence - in the markets and the electorate – that we are determined to both restrain public sector spending and unleash a private sector recovery – and that the two can feed off each other.

How?  We need a bolder vision of what went wrong in our economy and a bolder vision of how, by unleashing the forces of entrepreneurial small business, we can both reduce the public sector deficit AND create sustainable private sector growth.

Let’s explain to the electorate how the last Government presided over a far too cosy cartel of Big Government, Big Banks, Big Utilities and Big Corporations (across the board but especially in the banking, energy and public sector procurement markets). Let’s set out how we intend to open up these markets to unleash a new renaissance of enterprise to make markets more competitive, drive innovation and get creating jobs and wealth again.

We need to open up markets like banking and energy and telecoms to new entrants, and set out a bold ‘New Deal for New Businesses to help inspire a new generation of entrepreneurs.

What might a ‘New Deal’ look like? If you start a new business and employ 2 people within 12 months, we’ll get off your back: no tax or regulation for two years or until your turnover is over £250k.   No National Insurance. No VAT. No forms to fill in. And how about a ‘micro-business’ exemption from all the terrifying regulation passed by Europe, designed for big companies and too often gold plated by Whitehall.

Before coming to Parliament in 2010 I had a 15 yr career starting, and then financing, new business start ups.  I know that the single biggest barrier to most first time entrepreneurs is the fear of the tax and regulation liabilities from starting a new business. For people coming out of a job in a safe company – or the public sector from where we especially need to encourage voluntary switching to self employment - it can be very intimidating.  I always used to ask first time entrepreneurs to estimate their turnover. They nearly always estimated 80% of their former salary.  They were always wrong.  It was either nil, or very quickly far higher: they either had a business, or they didn’t. Lets liberate them from worrying about tax and Government regulation in that all-important first year and let them get on and build their businesses quicker.  They will be surprised how quickly they reach the threshold for paying tax. And forever grateful for our getting off their backs and helping them get there.

This is not plan B.  Its "plan A +++".

"Osborne-omics" is working well for big companies.  Inward investment into the UK is up.  1 million new private sector jobs created.  The low growth figures are ‘net’. Strong growth in some parts of the economy (Life Sciences, Automotive, IT) are getting lost in the average growth figure which combines significant shrinkage in the public sector.  We are rebalancing the economy.  We shouldn’t be surprised that net growth is low. The key is that the long term competitiveness is improving and that we are restructuring our economy so that we have a sustainable business model and globally competitive private sector capable of generating the revenues we need to pay for our ageing society.

The Chancellor has taken some important steps to make the UK an attractive destination of choice for global businesses. Cutting corporation tax to give us the lowest rate in Europe and the 4th best in the G20; reversing Labour’s callous pre-election 50p income tax rate to signal that we ‘get’ the need to cut marginal rates of tax on wealth creators to attract them here; and a willingness to invest in the key R+D infrastructure required to attract global business.   There are encouraging signs that it’s working.  GSK's announcement of a £500m investment in a new advanced manufacturing plant in the North West, and the recent announcements by Ford and Vauxhall of investment in Bridgend and Ellesmere Port respectively are important signals.

But we haven’t yet achieved ‘cut-through’ for the 'little guy': the self employed entrepreneurial strivers who take the risk of setting up their own business. Their confidence and growth is key to our economic AND electoral prospects.

We need to inspire a new generation of entrepreneurs to help rebuild this economy driven into the ground by Blair and Brown’s love affair with big banks and big debts which fuelled the Borrowed Boom.  And let's be honest enough to admit that we were all in it together: all of us with credit cards, insufficient pensions, and interest only mortgages were part of this unsustainable boom, and the bust that followed.

Small and big businesses are very different and require and respond to very different policy levers.   We need to recognise that what drives the CEO and boards of global corporations does not drive the owner managers of SME’s. No start-up entrepreneur I've ever worked with was motivated by corporation tax.  For the entrepreneur and SME manager, juggling cash-flow and the burdens of fixed costs, employment regulations, VAT and National Insurance are far more important. But the biggest factor is confidence that Government is on your side, and confidence that cosy monopolies will be opened to new entrants to create new markets.

Politically, I believe the British public could be quite forgiving about the lack of strong immediate growth. They aren’t daft, and understand well that we are clearing up Labour’s mess.  But we’re not going to get an electoral dividend without a compelling narrative about how we are laying the foundations for long term recovery. We must show how we plan to move from debt fuelled growth to a sustainable competitive economy in the global race; a clear 'values’ message and specific measures for the strivers and visible signs of a new model army of ‘Osborne Entrepreneurs’.

Thatcher’s white van men and Blair’s entrepreneurs were powerful reinforcing symbols of success.  We need to turn the crisis of Gordon Brown’s ‘Big Government overspend and zombie bank bailout into an opportunity for the next generation through a package of radical programme of deregulation and support for new entrants in key sectors like banking, energy and Government outsourcing to create new markets for insurgent new enterprises.

This is the vision at the heart of the 2020 Conservatives Innovation Economy Commission I set up and chair. It’s about developing a radical vision of how we can unleash the twin drivers of technology and entrepreneurship to drive the recovery.

Because this crisis was caused by an anti-competitive and un-conservative symbiosis of big Government and big banks we need to be the radical citizens army come to London to unleash the forces of the small, the local and the entrepreneurial.  Governments always find this hard.  Officials find it much easier to deal with big business and its trade associations. Ministers feel comfortable around board tables with white shirted corporate directors.  The machine is not good at talking to the cutting edge entrepreneur insurgents at the coalface of opening up new markets, who find the bureaucratic machinery of ‘stakeholder engagement’ unbearably cumbersome.  Unless we open up this dialogue much more boldly, there is a real danger of us being out of touch and starting to look like part of the very technocratic elite the public increasingly blame for the mess we’re in. We risk becoming far too quickly the defenders of the status quo.

This is true across a number of key sectors.  In Banking and Financial Services we need to be the voice of new entrants, critiquing Gordon Brown and Ed Balls’ profligate bail-out which has propped up the failed institutions of the boom, starving our economy of cash.  America has 20,000 banks. A new bank is started on average once a week.  We have a banking sector dominated by the Big 5, and a regulatory framework preventing new entrants.

Our energy market – and energy policy - is similarly dominated unhealthily by the ‘Big 6’.  We were supposed to be the party unleashing a revolution of decentralised energy, micro-generation, and consumer empowerment.

In my field of Life Sciences, the rapid development of genetics and health informatics is unleashing a revolution in patient empowerment and ‘personalised’ medicine which is shattering the post war domination of ‘Big Pharma’ and unlocking a more vibrant and entrepreneurial ecosystem of patient-centred medical innovation, with enormous benefits for patients, the NHS, and UK plc. But the conversation between Government  and industry is far too heavily dominated by the producer interests (on both sides) and an outdated focus on negotiating prices for ‘one size fits all’ drugs with 'Big Pharma'. We need a wider dialogue with the new entrants pioneering the new diagnostics, lower cost preventative therapies, personalised medicines and data transparency which are driving up health benefits for patients in other countries.  The Lansley reforms have liberated the Secretary of State for Health from defending NHS producer interests.  Jeremy Hunt  rightly describes himself as 'the first Secretary of State for Patients' which frees us all up to align ourselves with the consumers of public services rather than the producers.

And in infrastructure, too, where the Government is rightly making huge commitments to invest in upgrading our rail, broadband and road capacity, we won’t unleash the wave of private sector co-investment without a more radical commitment to open up new markets for local bond-financed infrastructure, as has been so successfully demonstrated across so many US cities.  The Heseltine report set out a radical blueprint. Lets implement it.

This revolution of innovation and enterprise isn’t just about the private sector.  It is also key to unleashing innovation in our public services and driving the efficiencies and productivity we need.  A properly reformed NHS which is driving and adopting medical innovation can make us or, unreformed, it will break us.  Our ageing society is driving a demographic tsunami of health costs in Dementia, cardio-Metabolic and Osteo disease and cancer which will far outstrip our ability to fund through the current structure.

These are enormous challenges. But as the last Conservative generation to confront this sort of scale of crisis showed in the 1980’s, it is possible to use the seriousness of the crisis to build public support for radical reform.

But to build that scaffold of support we first have to set out a clearer picture of the problem.  Brown and Balls Borrowed Boom – and the bust that we’re now all paying for -was built on a far too cosy coalition of big Government, big banks, and big business.

Their bail-out of zombie banks, neglect of public service reform have saddled us with a structural deficit and ticking debt bomb: an economy overly dominated by the bankrupt balance sheets of the big organisations of the boom. The recovery needs a new insurgent entrepreneurialism.

We have to unleash a renaissance of enterprise.

To govern is to choose.  The scale and nature of this crisis demands that we choose whether we are on the side of incumbency or insurgency.

We must be on the side of insurgent entrepreneurs. They rescued our economy and our party in the 1980s and they can do it again.  But we need to show we’re really on their side.

So let’s use the Budget to offer a New Deal for New Businesses: Start a business and employ 2 people within a year and we’ll offer you a complete exemption from all tax and big company regulation until your annual turnover is £250k.  No tax. No big company regulation. No employers NI.  Nil. Nicht. Nada.

Let’s use this Budget to unleash the little platoons.   Enterprising risk takers armed with empowering technology can disrupt cosy cartels and create new markets, to the benefit of us all. We need them to get to work.

> ConservativeHome's "Little Guy" series.


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