We need a new entrepreneurial revolution to rescue Britain

IT is all too easy to despair about everything that is wrong with Britain. But one ray of light is our slow-burning, yet increasingly profound shift towards becoming a more entrepreneurial society.

Britain counts 4.8m private firms, 99.9 per cent of which are small to medium-sized businesses (SMEs). Most are micro businesses. The rise of self-employment is a very good thing: it is gradually changing mindsets. The people involved are far more likely to believe and practice personal responsibility; they understand, perhaps more so than some employees in big businesses, that work and reward must be closely linked, that creating economic value is difficult, that one must always seek to please customers and that endless rounds of red tape and taxes are a nightmare.

So the rise of the small firm, of the individual as an autonomous economic agent, trading with the world rather than being employed by it, is a great cultural shift. But when it comes to job-creation and economic growth, there is one category of firm that is even more heroic, and that is the subset of entrepreneurs with the desire, ability and good luck to make it big. Nesta discovered in a seminal study a few years back that there are just 11,500 companies with more than 10 staff which had grown at over 20 per cent per annum over three consecutive years. These gazelles made up 6 per cent of SMEs with more than 10 employees and just 0.2 per cent of private firms but created half the new jobs created by existing companies in 2002-2008. Today, with giants such as UBS and RBS shrinking and laying off staff and a new generation of firms beginning to emerge from the ruins of the recession, gazelles are likely to prove even more important, as an excellent report from PwC, Duncan Cheatle’s Prelude Group and the Supper Club reminds us.

The paper merges anthropological-style research with accounting rigour, and highlights seven such gazelles as case studies of a much larger vanguard of successful high-growth start-ups. None of these seven firms – including lifestyle management firm Ten Group and occupational health consultancy Health Management – existed just a few years ago; today they employ 1,219 people in total. Most were started from home (where 60 per cent of small businesses are created), one from a cow-shed and another with little more than a phone. Founders made big financial sacrifices – one sold everything he had, another borrowed the money from credit cards, increasingly a source of start-up cash.

Everybody involved gains from successful firms, including the taxman. PwC calculates that 44 per cent of the gross value added created over the last five years across the seven gazelles was distributed to employees. The amount retained or distributed to owners was just 15 per cent, while the value distributed to government in taxes borne (such as corporation tax and business rates) and collected (national insurance, income tax, Vat) amounts to 41 per cent of gross valued added. The entrepreneurs featured generated a total tax contribution of £104.2m over the last five years. One of the firms featured hands 30 per cent of its turnover to HMRC; another collects £15,400 per employee in PAYE tax. At a time when debating tax avoidance has become a national obsession, these figures remind us that by creating jobs and value added, entrepreneurial businesses always generate lots of tax receipts, directly and indirectly.

There is only one way the UK will ever get out of its debt crisis and stagnant growth: it needs more successful entrepreneurs. Go for it, dear readers, you know you want to do it.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath

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