Entrepreneurship Policies To Keep (And To Tweak)

The coalition government created some brilliant initiatives for start-ups and small firms. Here's what the new guys should keep - and what they could improve.

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The coalition government created some brilliant initiatives for start-ups and small firms. Here's what the new guys should keep - and what they could improve.


Entrepreneurship Policies To Keep (And To Tweak)

The coalition government created some brilliant initiatives for start-ups and small firms. Here's what the new guys should keep - and what they could improve.

Share this article

The results from the general election, surprising to many, could be due in no small part to the perceived ‘business friendly’ policies of the Conservatives, and not just for big business. Small and medium sized enterprises (SMEs) came out in support of the government, leading in part to the turnout at the polling stations.

The coalition created a series of new policies that support entrepreneurs in various ways and this should be continued. Helping SMEs has caused in part our economic strength, but should also be refined to include new and developing aspects of our economy, including helping start-ups scale.

Seed Enterprise Investment Schemes

The Seed Enterprise Investment Schemes (SEIS) has been incredibly helpful for SMEs and start-ups looking to raise capital. To be eligible for SEIS, companies must have fewer than 25 employees and gross assets of up to £200,000. It is perfectly directed towards start-ups and SMEs.

"Getting the next generation into work, especially in digital businesses, should be a top priority"

In addition to helping raise capital for start-ups, this also creates a better ecosystem in general for investment. Investors can receive initial income tax relief of up to 50 percent on investments of up to £100,000 per tax year, but it also encourages investors to both be social when investing and not too greedy as an individual’s stake in the company can be no more than 30 percent.

This has meant a huge stimulus for angel investment activity in a growing ecosystem. Although London boasts big banks and savvy venture capital firms, angels were less active, leaving a gap in the funding life cycle for start-ups before the introduction of SEIS in 2012. This scheme is also helping to develop more risk-tolerant investors as they still receive relief even if the shares don’t make any returns (or negative returns).

As a corollary effect, a lack of ‘Series A’ funding in London has developed, more in contrast to the activity at the levels of SEIS rather than a decrease from previous years. A planned introduction to help scaling businesses as part of the Help to Grow fund is a welcome policy as well to help companies raise in the £0.5 million to £2 million range.

Research and development

Research and Development (R&D) relief has been a huge help for technology or science-based start-ups. To qualify, the activities must “contribute directly to seeking the advance in science or technology or must be a qualifying indirect activity.” SMEs can receive up to £130 in tax relief for every £100 of revenue expenditure allocated to R&D.

The relief can cover employee costs for direct employment on R&D, materials, utilities, software, and even subcontractors hired for R&D. For tech focused start-ups and even biotech or health tech start-ups, this can be a huge relief for their costs and encourage more innovation and investment into their businesses.

Employment Allowance

The National Insurance Contribution (NIC) holiday, as it was called before it was discontinued in 2013 after less than expected use by small businesses, offered a deduction of up to £5,000 for each new employee.

It was replaced in 2014 with the Employment Allowance, which gives a break for all businesses and charities for all new and existing employees of up to £2,000 per year, and is permanent. An expected 1.25 million businesses and charities will benefit from this initiative.

job interview

Helping start-ups take on their first employee is key to the government's jobs plan

Apprenticeship Grants for Employers

Getting the next generation into work, especially in digital businesses, should be a top priority. Not only does it help address a growing skills need in the tech sector, but it also helps make sure that all boats are rising with the new economy.

The Apprenticeship Grants for Employers (AGE) aim to provide £1,500 to SMEs to support the employment of up to 5 apprentices aged 16 to 24. The scheme is for SMEs with less than 50 employees and that are new to apprenticeships or haven’t enrolled a new recruit or existing employee onto an apprenticeship programme in the previous 12 months.

While the thinking behind it is good and initiatives like this need to be supported, it is in danger of not seeing the kind of use that it intends, much like the first iteration of the NIC Holiday Scheme. When the requirements are so specific and limited only to new hires or those businesses who have never had apprentices, it is likely to have a smaller reach.

AGE should also be extended to all businesses, not just those new to the scheme, in order to ensure the hire of more young people, much like the second version of the Employment Allowance.

Skilled Worker and Entrepreneur visas

With the strongest ecosystem in Europe and one of the best in the world, London is attracting world-class entrepreneurs not just from the EU, but outside as well, and we need to ensure that they establish companies here. Additionally, the UK needs more skilled labour in order to keep the wheels of the ecosystem turning.

The government introduced an innovative set of visas in the Tier 1 category for both entrepreneurs and those with ‘exceptional talent’. Yet in 2013, only 1,799 immigrants came to the UK via the Tier 1 categories - investor, entrepreneur and exceptionally talented.

To be deemed ‘Exceptionally talented’ means that ‘you’ve been endorsed as an internationally recognised leader or emerging leader in your field in science, humanities, engineering, medicine, digital technology or the arts’ - something quite difficult to achieve, and not exactly filling the gap of the tech talent needed for programming.

Compared with 10,127 who came in under the “General” route in 2010, this shows a significant reduction in the availability of a skilled workforce from outside the EEA and more needs to be done.

Similarly, entrepreneur visas have been introduced with mixed success. Only 2% of graduates who expected to start their own businesses after graduation said they were interested in applying for the Graduate Entrepreneur scheme, but for the general Entrepreneur visa, there were over 9,000 applications, and some worry that non-entrepreneurs were trying to game the system.

Calls for changes have been made for obvious reasons. One plan has been to charge accelerators and incubators with evaluating the business plans and giving them the ability to grant temporary visas.

This is a good step, but also does not solve the problem in terms of numbers of entrepreneurs coming to the UK as some entrepreneurs may not be right for accelerators, and there are a limited number of places on these programmes. Similarly, there needs to be a pipeline of talent to work on these start-ups and so far there is no system set up to address that need.

The Tories are expected to continue focusing on policies to help SMEs and start-ups, including among others increasing the number of Start Up Loans, cutting red tape, investing in technology infrastructure like broadband internet, and support for the sharing economy.

As the economy changes ever rapidly, so should policy, and while there have been some successes, the government should take the election results not as a rubber stamp of old policies, but a signal to keep providing and adjusting policies that work for SMEs and start-ups.

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Entrepreneurship Policies To Keep (And To Tweak)

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