More than 99% of businesses in the UK are officially classified as SMEs. They are the major source of job growth and the driving force behind Britain’s creative thrust. In other words, they are vital to the country’s well-being. Yet from the reports I receive many who run small and medium size businesses make it clear that they feel over burdened by regulation and taxation and uncared for by a Government that piles those burdens onto them.
Something needs to be done to change that feeling if we are to continue to create and develop small businesses in this country to meet the challenges of globalisation. It’s as stark as that. That is why I helped create the Conservative Parliamentary Enterprise Group which has the backing of David Cameron and the Shadow Cabinet and why, as chairman of that group, I continue to battle for the sector but especially for those who have the courage and conviction to start businesses in spite of all of the difficulties they face.
Starting and developing a business is a pretty daunting task. I know because I have been there on two occasions. I am delighted to say that both are now successful companies but there were many occasions when I felt that wouldn’t be the case and I am sure most business creators know that feeling all to well. Consequently, it is from a base of personal experience that I pay tribute to all of those who embark upon a similar journey.
Their success is vital to the countries well-being, employing as they do 50.2% of the workforce and creating 51% of UK turnover. Conversely UK Plc’s constitute just 8,240 of the nation’s enterprises, employing 49.8% of the nation’s workforce and producing 49% of its turnover.
And it should not be forgotten that UK Plc’s are in the process of shedding 1.5 million jobs over a ten year period whilst SMEs are creating some 2 million jobs at the same time.
Indeed, as I mentioned earlier SMEs are clearly the dynamo of creativity in our country and much of the nation’s innovative practices and ideas are emerging from the sector. They also play a vital role in the supply chain of big companies. For instance Airbus employs 13,000 people directly, but 135,000 people are employed in some 400 companies in its supply chain.
SMEs are therefore a vital sector if the nation is to face the challenge of globalisation. It is projected that India and China alone will be responsible for 60% of world trade by 2050 and if you include the growing commercial threat from Mexico, Brazil and the new EU accession states you begin to appreciate what a mountain we have to climb if we are to ensure that our children and grand children are to enjoy a prosperous and happy life in the future.
You would think that in the face of such a challenge our Government would do all they could help businesses grow rather than hinder them, but unfortunately that is not the case.
You don’t have to meet too many businessmen to realise that the sector is deeply concerned by the increased taxes levied by a Government which consistently claims to be business-friendly. SMEs are too often at the sharp end of Government decisions and those decisions are increasingly affecting the well-being of the sector. Indeed, the Association of Chartered Accountants has said that the cost of complying with red tape can be proportionally up to thirty times higher for small businesses than for larger firms and that is the reason I question the Chancellor’s decision to increase Capital Gains Tax (CGT).
That change has a sizeable impact on entrepreneurs. It appears to me that there are two different types of entrepreneurs: those who start a business with a view to selling it on and those who start businesses in order to be their own bosses and the latter often build their businesses up to become their pensions at the end of their working life.
The decision to increase CGT will have a negative impact upon those who start a business with an exit strategy in mind. Many in this category start businesses in order to sell them off at a profit before moving on to the next project. Nothing wrong with that. Very often the people who have the courage to start businesses are not the best people to develop them thereafter and need others to come in later to perform that function.
However, they are very important to a thriving small business sector and the fact that Capital Gains Tax will increase by 80% may deter them from embarking on the process, to the detriment of the nation’s well-being.
The increased tax also has a sizeable impact upon the second group, who often start a business or indeed buy one with the aim of managing and developing it further and thereafter using the equity in that business as their pension fund. Many of them do not invest in a separate pension and those people will be especially hard hit when they attempt to realise their asset on retirement.
Consequently an 80% increase in Capital Gains Tax will hit entrepreneurs particularly badly but that is not the end of the story.
CGT is just one of the additional taxes imposed upon businesses this year. Corporate taxes have been increased by 16% and the proposed Supplementary Business Rate (SBR) is only just around the corner. Businesses contribute massively to the economy and to provide the opportunity for Local Authorities to tax them even further will rightly outrage many.
I am not opposed to businesses contributing to the local area well-being, but they already do that by paying a centrally collected business rate. On top of that many of those running businesses also involve themselves in local community projects and charitable works and are often sizeable contributors and to burden them with yet another tax will simply add to their difficulties. When the Forum of Private Business undertook a survey on the issue it found that 83% of those asked said that the Supplementary Business Rate was open to abuse and that can’t be good.
SMEs therefore feel particularly let down by a Government which seems not to be on their side and the Northamptonshire Chamber of Commerce put it very bluntly indeed when they stated that ‘firms feel they get very little benefit from the current business rates that they pay, so any additional rates will add insult to injury.’
I understand the concerns of business and I believe the Conservative Party understands those concerns too. My objective is to ensure that the Party works collectively with businesses to both identify and overcome the challenges the wealth producing sector will continue to face.
Perhaps The Independent newspaper put it most succinctly earlier this year when it said ‘the British decline seems to be largely down to the activities of the Government and officialdom.’
That trend must be reversed, not just for the benefit of business, but for the future of the country.