It is small rather than large companies that generate most jobs. But the encouraging news for Britain is that the spirit of enterprise, far from being crushed as the pessimists would have it, should be a source of enormous confidence. If ministers foster it, then it will become our national salvation.
The evidence is more compelling than is widely appreciated. In 1983, there were about half the number of small and medium-sized enterprises than there are in the UK today. Thirty years ago, TV shows like Dragons’ Den or The Apprentice would not have been commissioned because it would have been assumed (probably correctly) that there was no audience for them. Nor would it have been much use discussing the issue with Robert Peston’s predecessor as BBC business editor. No such position existed 30 years ago.
It is the young who now capture this shift most emphatically. In 1983, barely one in 20 university students were admitted to courses which were in any way related to business. This year, about one in seven of those who continue their education will plough this furrow. Three decades ago, there were no such institutions as “enterprise clubs” on campus, encouraging students to start their own companies. Instead there were “industrial societies” for those who thought it was their destiny to work for the likes of IBM, ICI or Mars. In 2013, thanks mainly to the efforts of NACUE (the National Association of College and University Entrepreneurs) there are enterprise units in 135 universities and colleges. This is a cultural revolution, but without Chairman Mao, little red books and sadistic oppression.
But there are three measures that politicians of all stripes could endorse to embed this transformation.
The first involves amendments to entrepreneur’s relief, the provision that allows those involved in the outset of a company to pay a capital gains tax rate of only 10 per cent on the first £10m made after they sell that business. The chancellor deserves credit for the expansion of this scheme since the coalition assumed office. But it could be improved by significantly softening the requirement that a person must own at least 5 per cent of a firm to qualify. Then a founder could pledge to his first few employees that, if their product takes off, “we are all in this together”. The £10m ceiling is also a lifetime one, a limitation that should be dropped to support the rise of the repeat or “serial” entrepreneur, a familiar figure in the US but a relatively new and welcome addition to business life in Britain.
The second is to recognise that, while Tech City in London is an outstanding example of a successful digital media and online retail high-tech cluster, it is hardly alone in the UK. As our recent research has indicated, we are a Tech Country, with distinct and impressive centres in the likes of Aberdeen, Bristol, Cambridge, the Midlands, and Manchester. The highest number of patents per head issued in the UK hail from north east England, arguably the most effective network of business angels anywhere is to be found in Ulster, while north of the border Scottish Equity Partners (SEP), often investing locally, stands among the most astute venture capital organisations in the world.
If we are to put fuel in the entrepreneurial rocket, one more change – in the character of employment law – should be contemplated. This is not a matter of more rights versus less rights, but a shift in thinking away from headcount towards life-stages. At the moment, the legal framework treats Company A, which has employed 25 people for 25 years, in exactly the same fashion as Company B, which also has 25 employees but did not even exist two years ago and might take on 2,000 more people over the next two years if allowed to accelerate.
Enterprise, and hence employment, would be encouraged if a lighter bureaucratic burden were placed on new businesses, ideally in their first five years of existence but certainly in the initial three years. This may not be how Karl Marx would mark May Day. But workers of the world should unite around the idea.
Tim Hames is director general of the British Venture Capital Association (BVCA).