Oral statement to Parliament

Creating the most entrepreneurial decade

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Introduction Thanks for the kind introduction. I value a long and good relationship with the FSB. And I can assure you that as a Business…

Introduction

Thanks for the kind introduction. I value a long and good relationship with the FSB.

And I can assure you that as a Business minister my top priority is to promote growth led by the private sector.

By now the lessons from the era of boom and bust may be familiar - but it is vital that they are repeated and learned. Growth was too reliant on a consumer boom led by excessive household borrowing, a property bubble and an overweight banking sector. The subsequent collapse and recession left the country with a massive budget deficit and great vulnerability to shocks of the kind we are now experiencing as a result of higher oil and commodity prices.

The government’s biggest task has been clearing up the deficit: a big unpopular but essential task. And I am grateful for the support of the FSB in making the difficult decisions involving deficit reduction. I don’t need to tell a business audience why preventing UK PLC going bust is a vital first plank of any growth strategy.

There are many facets to our plan for growth. Today I want to talk about the role of smaller companies. SMEs account for 99% of all UK businesses, half of all private sector output and employment. Micro businesses (under 10 employees) account for over a fifth of private sector turnover, and over a third of private sector employment.

But their importance goes beyond sheer numbers. They also embody the sort of capitalism that we should be promoting. Risk taking. Innovative. Flexible. Geographically balanced.

And one reason why SMEs are important in policy terms is that they are disproportionately affected by the institutional failures or regulatory costs of government.

A large company may be able to afford the dedicated compliance and HR personnel to cope with the large volumes of regulation that are part of commercial life. For the smaller firm, this may mean the owner herself having to waste hours on form filling.

And smaller companies are also the first victims of capricious or overcautious behaviour from banks. I was concerned to read how lending conditions for smaller companies are deteriorating again. According to a recent survey, nearly a third have reported an increase in borrowing costs, up from a sixth.

That is why I supported a deal with the banks that included a special commitment to increase SME lending by £10 billion. It is crucial that this is delivered and I look to you and bodies like the BCC to keep us briefed on progress. We have made it clear to the banks that we look to them to finance SMEs on reasonable terms.

Let me know if they don’t deliver. I won’t let the matter rest until I am happy that we have a financial system suited to the needs of our smaller company sector.

And the government will help directly where it can; through our Enterprise Finance Guarantee which helps thousands of small companies get a loan; through Enterprise Capital Funds for those that need equity to grow; and through community finance interventions like the Big Society Bank.

Changing the entrepreneurial culture

We also mean to change the culture in Britain so that starting up and growing a business is straightforward. Britain is full of potential entrepreneurs. But this spirit has been undermined. Over half the jobs created in the last decade were related to the public sector. And for many years it was easier to make money through property speculation than genuine entrepreneurship. Our entrepreneurial ambitions should be higher.

Such gaps open up at an early age so we are focussing on education. We have a broad programme extending from school to university and beyond, and plan to expand this in our strategy for enterprise in education, to reach hundreds of thousands of young people each year.

In our Coalition Agreement we promised to help the unemployed straight into business through mentoring and access to start up loans. Now we are delivering - through the New Enterprise Allowance, a programme combining mentoring and loans. It will first be targeted at areas likely to suffer most from public sector cuts, before going nationwide in the Autumn.

Through this programme up to forty thousand unemployed people should be helped over the first two years. The trailblazer is right here in Merseyside, working with the St Helens Chamber of Commerce.

Making the UK the easiest place to start and grow a business

I know that we need to make things easier for business. We stand 17th in the world for ease of starting a business. The country that comes first is New Zealand. Whereas we undergo six procedures and on average take thirteen days, for them it is: one procedure, one day.

New Zealand is not the Wild West. We should be better at this. Our government has made a start. On 6 April Companies House will launch a new web incorporation service which will enable people to set up simple company within a few hours for £18; this is an important part of our “one click” agenda.”

Getting Britain trading

Britain has underperformed when it comes to breaking into markets that will be driving global growth. It still amazes me that we export more to Ireland than all the BRIC nations. I have myself visited China, Brazil, and Russia - and India twice, to drum up trade and draw attention to the excellent opportunities available.

But let’s face it: Britain can’t restore its leading position in export through sheer volume of ministerial visits. Today, companies are born global. A laptop and the internet means customers can be anywhere in the world. Only a quarter of SMEs are exporting - we think that could be improved. It will need their energy and ambition to breaks into new markets. And, of course, UKTI is there to support small firms wanting to take that first step.

Regulations - what we are doing on employment

Perhaps the most important step a business ever takes is to hire its first employee. Balancing worker and employer obligations is difficult. The needs of flexibility on one side and security on the other have to be taken seriously.

Too much uncertainty damages the incentive to make the relationship work. Despite the deepest recession since the 1930s, unemployment rose far less than in previous recessions, a real tribute to the flexibility shown by workers and managers - including, I am sure, many here today.

This flexibility will define our approach to the labour market. And we will make it clear to everyone that working for a smaller company is not a second-best option, but a good choice.

That is the reason why we launched a major review of employment laws: maximum flexibility for employers and employees within a competitive business environment.

Sometimes the problem is that businesses don’t know the rights they already have. This is what the Employer’s Charter is about: giving you confidence about what you can already do to deal with employee issues.

And we have heard your concerns that excessive recourse to employment tribunals damages workplace relationships. Some argue that it is too easy to make unmerited or vexatious claims, and the whole system discourages people from resolving things together.

The actual cost of going to arbitration is significant - £4000 per claim, plus an untold amount in worry and time wasted. It also contributes to understandable caution on the part of the manager, who might hold back from hiring, fearful of the risk of a drawn out tribunal.

This isn’t good for businesses or workers.

We share this concern, and so plan reforms that will encourage earlier resolution of disputes, more use of ACAS, and measures to weed out vexatious claims.

As part of this we are consulting on increasing from one year to two the period before employees can bring an unfair dismissal claims. At a time of still high unemployment, our priority is to restore the confidence to hire.

Fewer tribunals means bad news for lawyers but good news for everyone else.

Regulation in general

Nearly a third of small firms that want to expand say regulation is holding them back, according to a survey by the FSB.

You know how seriously the government takes this. In our Coalition Agreement, “regulation” and what to do about it is an enduring theme.

But I understand some scepticism. You want clear statements of action that bring certainty.

We are making progress. In the Coalition Government we promised sunset clauses. Now we have them: next week we are publishing guidance on how this will work. Ministers will be obliged by law to publish a report for parliament setting out whether the regulation has been effective, and whether the costs and benefits have been as expected.

And will stop putting British businesses at a disadvantage to their European competitors by over interpreting EU directives.

We have put a stop to this goldplating by introducing ‘copy out’: no more interpretation, but a straight transposition of the rules into domestic law. Whitehall has enough to do, without embellishing on the rules from Brussels.

We also want a more proportionate approach to future regulation, so that it doesn’t swamp smaller firms. A few days ago we finalised arrangements to implement the Display Ban on Tobacco Advertising and have exempted small shops - newsagents - for three years.

This concern for smaller firms should define our approach to regulation.

So I can announce a general moratorium from all new domestic regulations for three years for businesses of less than 10 employees, and for genuine new start ups.

We want smaller enterprises to be thinking about how to grow their business, not how to deal with the latest request from government. Unless it is about public safety or national security, you should be minding your business, not ours …

The exemption will kick in very shortly. We will engage extensively with all business groups about how it should work.

In the meantime, we will also withdraw the proposed extension of the right to request flexible working to parents of 17 year olds. We remain absolutely committed to promoting flexible working - but we know, because you tell us, that you don’t like frequent incremental changes to employment law.

And we are lightening the audit requirements of smaller firms. By choosing to match the minimum required by EU directives, more small companies can be exempt from the requirement for an audit. We think this could save £40m in unnecessary audit fees - and remove a worrying distraction.

Furthermore we will continue to exempt companies of fewer than two hundred and fifty staff from the Right to Request Time to Train. We know this measure, brought in by the last government, has caused considerable irritation. Training is of course essential to good economic performance and the government is, even in tough times, putting a lot more money behind apprenticeships. But it is worth remembering that the vast bulk of training already takes place, willingly, in the private sector. Smaller companies deserve the benefit of the doubt here.

And I know we need to be more transparent. Business organisations tell us that a lack of consultation around regulation is one of the most regularly heard complaints. A key example is with One in One Out - a policy that you like but understandably want more involvement in.

“One in one out” has an auditor - the “Regulatory Policy Committee”, which is made up of a broad spectrum of expertise including experienced business people, and imposes independent scrutiny of Government calculations.

The Business Secretary wrote to his Cabinet colleagues in January informing them that I would not allow through new regulations unless the cost/benefit calculations are rated “fit for purpose”. Where the RPC disagrees with a new regulation, its views will be published, so you can understand and maybe criticise the decision. We want the FSB to come in and help us review whether SMEs are getting the attention they need from the RPC.

The government also knows it is not enough merely to promise better behaviour in future. The existing stock of rules and laws needs to be overhauled. We recently counted over 21,000 live ‘statutory instruments’. They range from archaic rules about trading with the enemy - Siam, apparently - to the ‘Code of Practice on Noise from Ice Cream Van Chimes’ (1982) which states “it’s an offence to sound chimes ‘so as to cause annoyance’.

“Chimes should not be used more often than once in every 3 minutes.” “Chimes should be sounded for no longer than 4 second bursts at a time”.

When the man from Whitehall is telling Mr Whippy how to sing, something has surely gone wrong.

So government is starting a review of all regulations in a thematic way. We will post all the regulations that affect a particular area, and ask you what you think of them - starting on April 7th with 50 retail. And then 300 industry regulations provided by my Department.

I am asking for your help - tell us how the rules affect you. We are giving those affected an opportunity to tell us which rules are badly designed, or straightforwardly a bad idea. The onus of proof will then fall on Whitehall to prove why the regulation needs to stay, or if there is another way of achieving the same outcome.

This will be the first time that such a comprehensive look has been taken at every single regulation on the statute book. This is your opportunity to make doing business easier, and I’d encourage you to grab it with both hands.

Summary

So let me summarize what we have and will do to reduce the costs of red tape stopping business and employment growth:

  • We have launched a comprehensive Employment law review;
  • we are taking action on tribunals;
  • we have spared smaller firms the form filling burden of Right to Request Time to Train
  • and smaller firms will soon have lighter audit requirements;
  • at the same time we are transforming the approach government takes to regulation;
  • “One In One Out” is working, and will be fully transparent;
  • there will be an end to the pointless goldplating of European rules;
  • sunset clauses will mean ineffective rules die a natural death;
  • a three-year exemption for new regulation for micro enterprises and start ups covering all new regulation from that date except in public safety and national security; and
  • a bonfire of the stock of regulation, with the onus on government to justify retaining it.

So you can see that we mean business. I and my colleagues with responsibility for business all come from a business background, so we all know the problems you face. We also know that it’s not Government that creates wealth; you do.