Osborne-commissioned report advocates cutting corporation tax...

George Osborne commissioned a study and survey by the European School of Management, the UK's second ranked business school, into the UK's environment for enterprise. It reported yesterday but the media doesn't seem to have shown an interest despite it calling for:

• A simpler tax system with lower Corporation tax rates and more incentives for reinvestment in new businesses.
• Mentoring schemes for young entrepreneurs and more focus on business skills in schools, including encouraging students to set up mini companies.
• A national system of "dragon's dens" to improve financing for growing businesses by making it easier for business angels to invest as syndicates and setting up a virtual marketplace for unlisted investment opportunities.

Interestingly, Osborne pretty much endorsed the findings:

"These recommendations provide a blueprint for making Britain the enterprise capital of the world with simpler taxes, lower tax rates, less regulation and a generation of young people with the skills they need to start their own business."

There's hope of catching the Celtic Tiger yet! Download the report in full or click continue to see bullet points of the main findings.

As part of the research, the authors conducted a survey of 140 entrepreneurs. Key findings include:

Tax

• Increased tax rates would force 32% of the respondents to consider relocating their business away from the UK.
• 79% of respondents think the tax system is too complex has a negative impact on their business through taking up managerial time
• 85% of respondents indicated they have not applied for any tax credits in the last 12 months
• 79% believe that radical, structural changes are needed in the UK tax system in order to encourage entrepreneurial activity.
• 8% of respondents plan to sell their business in the next two years, but they would re-invest, on average only 36% of the profit
• Taxation, regulations and human capital (recruiting staff, managerial expertise, skilled workforce) have increased their negative impact on business success over the last 12 years on average.

Skills

• Two thirds of respondents thought that GCSEs and A levels do not prepare students for the labour market.
• 84% thought that GCSEs and A levels do not prepare students well enough to start their own firm.
• Employee skills shortages restrict business growth, particularly in terms of managerial skills (61%), communication skills (58%) and sales and marketing (54%).

Survey Details

• 140 respondents participated in the survey, having 12 years of entrepreneurial experience (on average). In addition, 31% declare having revenues only from their business, 23% state they own more than one business and 12% invest in other small businesses. Two thirds have a higher education degree or above. In terms of age, 25% are aged 35 to 44, 34% are aged 45 to 54 and 27% are aged 55 to 64. On average, it took them 7.8 years and 3.7 jobs between leaving full time education and starting a business. Finally, the average turnover of their businesses is £2.8 million, with 58% having a turnover less than £1 million.

Growth and relocation risk

• New companies have increasingly struggled to grow in size and the percentage of businesses that achieve an annual turnover above £1 million five years after creation has decreased from 48% in 1997 to 16% in 2006.

UK losing out compared to G7 countries, companies struggle to grow

• The authors find that the UK is losing out in terms of competitiveness in relation to other G7 countries, with lower rates of productivity and a widely perceived shortage of skills. The analysis shows that new companies have increasingly struggled to grow in size and the percentage of businesses that achieve an annual turnover above £1 million five years after creation has decreased from 48% in 1997 to 16% in 2006.
• Regulatory burden increasing
• Red tape is frequently reported as the largest constraint to the growth of businesses - the total cost of the major regulations to business approved since 1998 totals £50 billion and is on the increase. Time spent on legislation has increased over the previous two years and this lost time is costly, particularly to smaller businesses.
• Business owners are increasingly dissatisfied with the volume, along with the complexity and rate of change of legislation. Furthermore, “too many regulations” is the second most popular reason why owners wish to downsize, sell, or close their business.

Comments

[Matt Wright]

The decline in growth rates of new companies is very worrying. We cannot have the things we need as a modern country if we are not sufficiently enterprising. The burden of tax and bureaucracy heaped on businesses must be tackled and very significantly simplified and reduced.

[John Broughton]

Life is tough in the new / medium small business sector for all sorts of reasons.
As someone who works almost exclusively in the sector I can confirm that red tape is a serious problem. Banks generally are "upping their criteria" what was acceptable as security a year ago is not acceptable today. One example, not always known, is miss a VAT payment and suffer a 5% penalty (even late by one day - and this government has eliminated latitude) next time 10% penalty the next 15% penalty. It has driven some enterprises out of business.

Here, in wales, grant aid is being reduced, the "Welsh Assembly Government" is about to change a number of its pen pushers into business consultants making the initial diagnosis of business need;these are people who have never worked in any business that had to derive a profit nor have they any qualification relevant to business.

The underlying problem is to establish business friendly solutions something that simply cannot happen under this government or any supported by the libdemented.

[Yet Another Anon]

Regulatory burden increasing
Unfortunately every government talks about cutting regulation and ends up increasing it.

How about a list of 10,000 regulations to abolish under the Deregulation and Contracting Out Bill, that would be a good start.

[Matt Wright]

Or a rule that for every new law introduced, one must be repealed.

[Moral minority]

This report vindicates the reports by John Redwood's Economic Competitiveness policy group and Lord Forsyth's tax commision. Osborne could have saved time and money by listening to those Thatcherites, dismissed as dinosaurs by the Cameroon modernisers.

Osborne and Hammond must deliver policies that promise cuts in taxes and spending. It is time to bin the "share the proceeds of growth" statism.