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House of Lords joins the debate on encouraging the growth of small businesses in the UK

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How to spur the growth of SMEs has been a popular topic for countless seminars, conferences, think-tank reports and last night the House of Lords joined the list with a  debate on what steps the government is taking to “encourage the growth of small businesses in the UK” – a debate which I was part of.

Certainly the business and regulatory backdrop has probably never been more supportive for SMEs, of which there are now over five million and according to EU figures they account for close to 50 per cent of the UK’s economic output.

Growth is the key aim of most SMEs. They don’t want to stay small. They want to grow, open new sites and stores, invest in new products, hire new staff. Over the past few years a raft of measures have helped small business grow and thrive.

We have seen Entrepreneur’s Relief increase dramatically from £2m a year to £10m a year, in tax free lifetime gains, meaning that founders and entrepreneurs can keep more of the wealth they themselves have created, recognising the risk they have taken and the broader economic benefits their endeavours have brought. 

The Start Up Loans scheme has helped thousands of individuals start their own business, often moving people from welfare into work or from employee status to business owners and entrepreneurs. So far it has made 25,000 loans worth £130m. 

Measures have also been introduced to help not just start but run a small business too. Changes in the laws on employment tribunals and extending the qualifying period for unfair dismissal give business owners in Britain the benefit of one of the most liberal labour markets in the developed world. Cutting employer national insurance by £2000 means that 450,000 small businesses, one third of all employers, pay no jobs tax at all. 

Read more about the small business debate:

The coalition government is committed to helping further through its powerful procurement footprint, targeting 25 per cent of all spend going to small and medium sized businesses. 

Although much has been done now compared to ten years ago, there is still more that needs to be done: principally the tax system needs to be simplified. 

A recent study from the Association of Accounting Technicians (AAT) found that the UK’s complex tax system, is costing SMEs £9.9bn a year in compliance costs, versus only £100m for larger firms. This is something that the Office of Tax Simplification, which is looking to simplify our tax code, should research to see if measures can be implemented to lessen this burden.

As we encourage people to found and work in small businesses, and make them cheaper to operate, we also need to help them grow by encouraging more investment. This means making it easier for them to access finance, and encouraging those with the means to consider investing in them. 

The Enterprise Investment Scheme has been expanded to offer tax reliefs of 30 per cent up from 20 per cent for the investor and the aggregate limit that can be raised by a single company increased from £2m to £5m. Likewise, for companies raising money from Venture Capital Trusts, the individual company limit has increased from £2m to £5m and the maximum number of employees from under 50 to under 250. 

Another key mechanism to channel finance to fast growing, innovative companies, is venture capital. Here the coalition government is incentivising more investment through the Enterprise Capital Scheme with the amount available increasing multiple times in this Parliament, most recently in the 2104 Autumn Statement with a further £400m being made available. 

In order to support SMEs we need to encourage their growth. We have incentives and encouragement to start a business, help in bearing down on costs to run it, and policy to drive investment into it to help it grow. This joined up approach to business policy, one that understands the complete business ecosystem and in particular, the challenges and opportunities of running a small business that wants to grow, should hopefully help more and more small businesses become much larger concerns..

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