Lord Flight: Don't let today's anti-business establishment freeze out tomorrow's entrepreneurs

Lord Flight was Shadow Chief Secretary to the Treasury from 2001-2004 and led for the Opposition on the FSMA.  He is now chairman of Flight & Partners Recovery Fund.

One of the biggest achievements of the Thatcher Government was the encouragement of and revival of entrepreneurship, and delivering the venture capital finance to support it – for which Lord Young should take much of the credit.  This Government has similarly sought to encourage entrepreneurship.  The improvements to the EIS Scheme in terms of enlarging the size of companies which qualify has been particularly helpful, essentially as it supports new businesses which have survived, need more resources to grow and are more likely to succeed.

The Government has sensibly supported Capital Gains Tax Entrepreneurs’ Relief and it is to be hoped that measures will not be introduced to reduce this.  The Government has also started to address the all important area of public sector business contracts for smaller companies where, historically, both internal guidelines and the complexities of EU tendering requirements have shut out small businesses.  This is particularly important with regard to the NHS, where much innovation is coming through from small businesses.  Albeit in part the result of a difficult economic climate and shortage of jobs for young people, it is extremely heartening to see a large increase in the number of young people considering being entrepreneurs.

It is, therefore, disappointing to find an element of long-standing, “Establishment”, anti-business/entrepreneurship prejudices creeping in with the G8 “Transparency and Trust” initiative.  One of the reasons why America has been more entrepreneurial than the UK over the last 100 years is that, in America. there has been no shame or financial penalties on the relevant entrepreneur when a business fails, or an individual has to go bankrupt.  Henry Ford, Bill Gates and Walter Disney experienced major setbacks or failures on their road to success.  We need a culture in which the young people taking part in the Government’s recently launched start up loans initiative will continue to their second or third attempt if the first fails and not give up “out of shame”.

An unsympathetic approach to business failure is embodied in the suggestion that company liquidators should be given the power to “sell on” the civil action liabilities of directors following a company failure.  This raises the spectre of directors being pursued for their possessions by debt collectors.  While directors need to be held to account, it is crucial that the balance struck is pro-entrepreneurship.  All new enterprises involve substantial risk and in the UK the failure rate has been high.  If an excessive portion of risk is loaded on to entrepreneurs and directors then, as night follows day, this will end up discouraging entrepreneurship.  The risks in taking on the role of being a director are already large; for small and medium size enterprises with a high risk of failure it is essential that potential financial sanctions resulting from business failure are not prohibitive.

Here there is also some conflict within Government policy.  Its efforts as part of its growth strategy to encourage seasoned directors to participate in the boards of mid-size businesses are to be welcomed, but will be undone if, as a result, the Government’s new, proposed personal risks for directors render the risk/reward balance of participating in such Boards unattractive.  It is interesting to note that no comparable disincentives are being proposed for Civil Servants whose policies fail, at major expense to the tax payer, – such as the £18bn written off on the failed Systems project for the NHS.

The UK needs a pro-entrepreneurship culture like that of the US and it is disappointing and unfortunate to see anti-entrepreneurship, Establishment prejudices creeping back in.