Comprehensive Spending Review: Calls For Tax And Red Tape Reform In Spending Cuts To Boost Entrepreneurship

Ahead of next month’s Comprehensive Spending Review (CSR), I’m calling on the Government to reform tax and red tape in order to boost small business growth and help reach its target of £20 million in savings.

Simplifying regulatory compliance and reducing the red tape burden, including streamlining the tax system, could help the Government’s public sector efficiency drive and also save smaller employers in the region of £12 billion per year, the annual cost of red tape for small businesses in the UK, revealed last year in the Forum’s ‘cost of compliance’ research.

Combined with a commitment to further cutting small business taxes in the short term, introducing these measures on 20 October could both stimulate entrepreneurship and help the Government rebalance the economy.

Put simply, the UK’s economy – ‘UK plc’ – should be run more like a small business, making the most out of the country’s valuable resources and ensuring that all departments work together to create and promote a real culture of enterprise. The Government should focus on cutting the social protection budget by getting people into sustainable employment in the private sector.

Historically the public sector has accounted for just under 40% of economic activity in the UK. Reducing it back to that level will inevitably mean significant cuts and there will no doubt be some pain to come.

However, there are also opportunities that could bring significant benefits for small firms. People complain of duplication, confusion caused by different public bodies and excessive bureaucracy. We have a rare chance to remove these barriers to business growth in this Comprehensive Spending Review. It should not be missed.

In addition to tax and regulatory reform, the Government should create value for money in the public procurement process by opening it up to small firms, and argues that targeting small business development as a way to increase employment should be prioritised.

Further, the public sector must avoid duplicating private sector business support and training provision, particularly in the creation of new Local Enterprise Partnerships (LEPs), and that instead, in providing support services, the public sector should address private sector market failure when it occurs.

Calls to the CSR covers eleven key areas, summarised below:

Taxation

  • Begin tax simplification and focus the tax system on creating employment and encouraging enterprise.
  • Consider schemes such as a National Insurance (NI) holiday for all non-employers in order to take people out of welfare, not just the first 10 staff employed by new businesses.
  • Address tax loopholes – such as the VAT loophole for the Channel Islands.
  • Provide more information and transparency on the cost-effectiveness of government policies.
  • Overall, reduce the burden of tax on smaller employers so that they can develop their businesses.

Reducing regulatory waste

  • Work to limit further EU social regulation, particularly legislation which has a debilitating impact on small firms’ abilities to trade profitably, treat their employees equally and compete in a global market.
  • Give the mediation body Acas powers to throw out unreasonable claims by employees against employers before they reach the tribunal stage.
  • Clarify what small businesses are required to do on a practical level so that all businesses undertake similar workplace processes.
  • Rebalance the rights of employers and individual employees.
  • Procurement and monitoring contracts

  • Procurement should be based on the quality of the tender, the ability to undertake the work and proof of the quality of previous work, with less requirement on internal unrelated policies.
  • The public sector should choose suppliers based on the principle of value for money.
  • Include all government departments in efficiency-based reviews of contracts.
  • Seek to reduce the administrative burden associated with monitoring individual projects but give the National Audit Office (NAO) the option to demand greater transparency in projects.

Rebalancing the economy

  • Ring-fence spending on UK Trade and Industry (UKTI) and increase the financial protection for businesses through the Exports Credits Guarantee Department (ECGD).
  • Strengthen the monitoring and policing of intellectual property held overseas by smaller firms.
  • Support the construction industry and low carbon economy by reducing VAT for businesses which want to install energy efficient or energy creation systems.
  • Create a ‘green’ investment bank to financially support this transition.
  • Reduce the number of quangoes on green issues and provide environmental advice through the national Business Link website and consumer channels. Also consider scrapping the Carbon Reduction Commitment (CRC) and other overly complex schemes.
  • Greater support for opening up universities to commerce and the commercialisation of research.

Employment

  • The market for business start ups is crowded and public sector support often duplicates what is already there. The job centre should be used to signpost support provided by other organisations.
  • Significantly reduce the cost of administering employment law. Many employers are on the whole supportive of the framework of the giving them a process of best practice but the daily monitoring processes and paperwork required to defend themselves in a court of law is a huge burden.
  • Encourage business owners to take on young people by working with insurers so that Health and Safety issues and related paperwork are not used as excuses for effectively preventing under 18s from accessing certain workplaces when they are under proper supervision.
  • Support a more flexible workforce by looking at the cost of transport to work in the UK, which is currently prohibitive for lower-paid workers.
  • Streamline the redundancy process so that businesses in distress can act quickly and minimise job losses.

Skills and training

  • Limit state subsidised training for businesses with over 250 people to sustainable apprenticeship schemes.
  • Building on the success of entrepreneurship programmes within schools, the Forum would like short sessions provided on employment skills.
  • Allocate funding for smaller employers to spend on the training they feel that their staff need rather than limit such training to specific providers or courses. This could be done through Annual Investment Allowances (AIA).
  • Provide training and suggest incentives for colleges so that they can allocate a named adviser to proactively engage with business owners and co-ordinate skills training with other providers.
  • Encourage internal training, supply chain training (e.g. for manufacturers) and incentivise creating internal training on topics such as marketing to other local businesses.
  • Align training more closely with business support. Industry specific support could be made available from the Business Link Hub or specific trade associations.

National business support

  • Maintain a more focused Business Link website alongside a call centre to provide advice and guidance. Approximately 11% of business owners do not have access to the internet so a telephone call centre approach is also needed to ensure there are no access issues.
  • High growth hubs to focus on the 6% of businesses that create around half of employment in a growing economy.
  • Clarify the role of Local Enterprise Partnerships (LEPs) and how they will respond to changing business needs.
  • Allow LEPs to borrow against council rates rather than business rates because the former are less volatile.

Finance

  • Banks, rather than taxpayers, should be required to pay for transparent, independent monitoring of access and cost of finance, rejection rates and potential demand for additional finance.
  • The Enterprise Finance Guarantee (EFG) should be made more flexible and be used for growth finance in order to allow greater use of alternative forms of finance.
  • Formal targets for banks to respond to lending requests would speed up the process making the process more effective and create better value for the taxpayer.
  • Part-funded public sector equity funds should be more flexible in their targeted sectors.
  • Equity financing for environmental technology should, however, be among options for green investment.

Promoting investment

  • Encouraging foreign direct investment at a national rather than local level would limit the likelihood of a ‘Dutch auction’ between potential locations.
  • Provide information on and create a process for possible collaborative research schemes for smaller businesses.
  • Replace R&D tax credits with greater Annual Investment Allowances (AIA).

Unfair competition

  • Work with the Institute of Credit Management (ICM) to update and strengthen the Prompt Payment Code.
  • Consider using only signatories of the scheme in larger public sector contracts, particularly on construction.
  • Examine complaints on supply chain injustice on an anonymous basis as far as possible.

The role of businesses in the community

  • Create a wealth retention index and encourage councils to look at retaining wealth within their communities.
  • Roll out best practice systems on business crime prevention in the areas where they will make the most impact.
  • Introduce long term incentives for councils that help support and develop local businesses.
  • Review various supplementary business rates and workplace parking levies to deter parochialism. As a minimum ensure they introduced with the support of the local business community.
  • Improve high speed broadband for remote areas.
  • Seek to engage the local business community in the ‘big society’.

According to  research, employment law is the costliest bureaucratic burden, costing small businesses £2.4 billion per year. Health and safety administration costs £2.1 billion and tax £1.8 billion per year, according to the research. Overall, small business employers devote an average of 37 hours each month to complying with regulations.

Micro businesses (0 to 9 employees) spend an average of 33 hours per month complying with regulations, small businesses (10 to 49 employees) 48 hours per month and medium-sized companies (50 to 249 employers) 131 hours – equivalent to one full-time member of staff.

Phil Orford joined the FPB in February 2008 as Chief Executive. Following a brief spell as a sales executive, Phil set up his first company in 1983 at the age of 21. In the years that followed, he was involved in a number of start-up companies, which eventually formed a small group employing more than 100 staff and which had a turnover in excess of £10m. In 2005, Phil left the group and set up a new business to assist small companies comply with environmental legislation through the use of Web-enabled apps and tools.