The entrepreneurial renaissance that never was – but could still be

The last government portrayed itself as the most pro-business yet. But time after time Cameron and Osborne fell back on headline-grabbing policies, leaving the fundamental barriers to entrepreneurship intact. In our new project with Crunch, the online accountants for micro-businesses, the RSA will undertake an audit of recent enterprise policies and explore how we can create a truly entrepreneurial society – one that works for people who strike out alone.

Confronting the entrepreneurial myth

On the face of it, the UK looks to have experienced an entrepreneurial renaissance. Almost 4.8 million people now work for themselves, and 8.4 million people work for micro-businesses with 10 or fewer employees. According to the Global Entrepreneurship Monitor – a regular survey of entrepreneurial attitudes and behaviours – over 80 percent of the UK population believe that those starting up in business have a high level of status and respect in society – a figure that has grown by 10 percentage points in the last decade. Popular culture venerates self-made business owners like never before.

But how entrepreneurial as a nation are we really? Yes, record numbers are starting their own ventures and freelancing, but there are still many thousands whose business ambitions are being stifled. While 37 percent of the population say they would like to start a business, only 5 percent are in the process of doing so. And of those who do break through into business, many struggle to make ends meet, balancing the desire for autonomy with the insecurities inherent to self-employment. Maternity pay, holiday pay, sick pay and employer pension contributions are just a few of the protections people lose when they choose to go it alone.

Behind all the rhetoric and fanfare, the harsh reality is that entrepreneurship in the UK is still the preserve of the privileged. Wealth continues to be a decisive factor in determining not just whether people start up in business, but also whether they can survive and ultimately thrive working for themselves. Previous RSA research has shown that people who receive an endowment of £10k or more are twice as likely to move into self-employment, while those who own their home outright are more than three times as likely to last three years or more in business. Wealth acts as both a springboard and a safety cushion.

A story of piecemeal policies and half-hearted efforts

The question is why. Why is it that after all the talk of an entrepreneurial revolution there are still thousands if not millions who are denied the opportunity to realise their entrepreneurial potential?

The reasons are many and varied – but a major culprit has been the timidity of the last government’s policy agenda – an agenda that continually failed to support the risk takers that politicians so often espouse. There was no shortage of high profile announcements, edicts and initiatives designed to spur entrepreneurship. In his tenure as Chancellor, Osborne reduced Corporation Tax from 28 to 20 percent, and enacted a number of tax incentives such as SEIS to encourage investment in start-ups. Added to this has been a relentless focus on deregulation – epitomised by the ‘one-in, two-out’ rule on red-tape – as well as a series of access-to-finance schemes such as Start Up Loans.

Yet what appeared to be admirable moves on the surface were often empty gestures or ill thought-through crowd pleasers. The overzealous fascination with paring back regulation is a case in point. Few would argue that bureaucracy should not be kept to a minimum, but the arbitrary one-in, two-out rule on red-tape makes little sense. Other policies had merit but were too poorly resourced to make a difference. The impact of Local Enterprise Partnerships has been patchy as a result of variable funding, while schemes like MentorsMe and GrowthVouchers never really took off in part because of their threadbare budgets.

In other policy areas, the government was afraid of challenging vested interests – none more so than in the domain of taxation. Last year, the FT journalist Janan Ganesh wrote a revealing article describing the fate of three fictional characters, each of whom are taxed differently according to how they accumulate wealth. Person A inherits a house worth £600,000. Person B buys a house and sells it some years later at an inflated price. And Person C starts a business and builds it up from scratch. Common sense tells us the last of these should bear the lightest tax burden – but in our topsy-turvy system business owners can face the biggest tax hit of all.

It is not just that the government’s enterprise policies were shallow in depth, they were also narrow in breadth. Rarely was there a consideration of how we might support entrepreneurship beyond the traditional levers of tax, regulation and finance. Welfare, including Universal Credit, could be the springboard that many people on low incomes need to launch a business, but it continues to be framed as anathema to an entrepreneurial society. Likewise, competition policy could be wielded to challenge monopolies and allow new entrants to get a slice of lucrative markets. Yet the government tended to turn a blind eye to concentrated industries in the misplaced belief that large firms are inherently more productive.

Introducing the Entrepreneurial Audit

It is easy to get caught up in the minutiae of policy detail, but it all boils down to a simple truth: our economy is not designed to support entrepreneurial behaviour, and as long as this continues only a fraction of the most affluent will be able to enjoy the full benefits of self-employment. That many of the above policy decisions were taken on the grounds of political expediency makes the situation all the more frustrating. It is certainly feasible to tax unearned income more than earned income from entrepreneurial activities, just as it is possible to assist low-income self-employed workers via Universal Credit, redirecting resources from groups already generously supported in the welfare system.

The challenge is to bring these tensions to the surface and make it clear that the status quo is neither predetermined nor inevitable. That’s why the RSA will be working with Crunch, the online accountants for micro-businesses, over the coming months to undertake an ‘audit’ of the government’s enterprise agenda, critiquing past policies, raising provocations and putting bolder ideas on people’s radars. Although it may not always feel like it, enterprise policy is ripe for an overhaul – and there is never a better time to do so than during a handover in government. The May leadership can pick up where Cameron left off and continue with piecemeal changes, or it can make a clean break and create an economy that finally works for the risk-takers and wealth creators.

The choice is obvious.

The RSA is beginning a new project with Crunch that will seek to deepen and extend our understanding of what works in supporting the self-employed and micro-businesses. If you would like to find out about the project or share your views and ideas on potential policy changes, get in touch by emailing benedict.dellot@rsa.org.uk