All in all, the measures announced in George Osborne’s latest Spending Review made it a positive one for entrepreneurs, start-ups and SMEs in the UK.
Fears about the abolition of Entrepreneurs’ Relief and cuts to science and innovation spending were proved unfounded, while small businesses can be happy with the announcement of extended business rate relief, new and expanded Enterprise Zones, and an apprenticeship levy that will address skills deficits while avoiding 98% of businesses.
But questions should be asked about the global competitiveness of UK R&D spending, of the government’s commitment to innovation in the energy sector.
Apprenticeships, Enterprise Zones and business rate relief
While much needed as a response to the UK’s skills deficiencies and recruitment bottlenecks, the lack of clarity around the precise terms of the apprenticeship levy was a cause of uncertainty amongst many businesses ever since it was announced in the summer budget. A debate raged around whether a higher number of businesses would be taxed at a lower rate, or a smaller number at a higher rate. Fortunately for SMEs the latter option was preferred; businesses with a payroll of above £3 million will be taxed at 0.5% – meaning that only 2% of businesses will pay the levy, while all will benefit from the increased availability of apprentices.
The Chancellor also announced that 26 Enterprise Zones will be either newly created or extended. Aimed at driving business growth and job creation, especially for new and expanding firms, they offer benefits to businesses that relocate including business rate discounts, simplified local authority planning, superfast broadband, and tax relief on capital investment. For entrepreneurs looking to start new ventures or expand an existing firm, more Enterprise Zones can only be good news.
Last but not least, over 600,000 small businesses will continue to benefit from business rate relief until 2017, leaving more cash in their hands for increased investment, recruitment and expansion.
Science and innovation protected
Despite fears that 17% cuts to BIS (Business, Innovation and Skills) departmental spending would imply cuts to science and innovation, the chancellor announced that both would be protected, acceding to appeals from key figures in science and business that doing so would threaten the UK’s future growth and productivity prospects.
During the last Parliament, the Science budget was protected in cash terms, which after inflation meant it took a slight cut. This time, George Osborne committed himself to protecting it in real terms. Innovate UK on the other hand, the body that encourages private sector innovation, saw its budget protected in cash but not in real terms, while some of its funding of businesses will be converted from grants to loans.
While it is good that the agency did not lose more, loans are not going to be as attractive as grants to businesses that want to fund research, so the change risks either discouraging businesses from investing in innovation or indebting them for doing so. And while science spending has been protected, the fact remains that the UK lags behind other OECD countries in its research expenditure, spending only 1.7% of GDP on research versus an OECD average of 2.4% and 2.9% in Germany.
Despite murmurings to the contrary, Entrepreneurs’ Relief (relief on capital gains taxation when selling a business) was maintained, bar some added constraints on eligibility, meaning that entrepreneurs who risk their savings and careers to get a business off the ground will continue to keep more of the wealth they generate. As a policy that we celebrated in our Entrepreneurs’ Manifesto as an example of what Britain does right in supporting entrepreneurs, we are pleased to see that the Chancellor did not raid it to meet his surplus fixation.
Other investment incentive schemes – such as the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Social Investment Tax Relief (SITR) – were also maintained but restricted from certain activities, such as renewable energy generation from 2016 onwards, a blow to innovative start-ups in the renewable sector and further evidence of this government’s lack of commitment to green growth.
Interestingly, the government announced that ‘it will explore setting up a new broadband investment fund, to support the growth of alternative network developers.’ The fund would be ‘supported by both public and private investors, and would be managed by the private sector on a commercial basis.’
While the main rationale of the policy is increasing market competition in the broadband sector to increase quality of service, it should also help in delivering the government’s commitment to 99% superfast broadband coverage in the UK by 2018. Although on the whole the UK does well in broadband coverage, many rural and coastal areas miss out.
In our recent report on reviving Britain’s seaside towns, we wrote of the need to upgrade broadband infrastructure by the coast. In a case study on Bournemouth, we cited the example of independent provider C4L that has along with others helped make the town one of the best places for superfast broadband, with over 95% coverage. If all goes well and the fund is set up, then we hope it will fund similar such schemes across the UK.
After months of appeals from members of both parties, civil society organisations and think tanks, as well as a bruising defeat in the House of Lords, George Osborne decided to bow to public opinion and drop his proposed changes to tax credit cuts. A whole host of people on low incomes no longer have to worry about seeing a dramatic fall in their living standards next year.
Part of this group of people on low incomes are the self-employed, who on average earn less than their salaried counterparts. While not every person who fits the term ‘self-employed’ can be considered an entrepreneur (e.g. freelance chauffeurs and graphic designers), the motivations that lead them to make that choice – autonomy, flexibility, satisfaction – tend to be same, and insecure freelancing is often a prelude to full blown entrepreneurship. So the fact that their support has been maintained is good for the growth of entrepreneurship in the UK.