START UP BRITAIN

Do we have lift-off, George?

Robert Watts

SUNDAY TIMES
Published: 27 March 2011

Emma Jones is a woman on a mission. Tomorrow morning this vigorous, 38-

year-old brunette will share a platform with the prime minister at the launch of
Start Up Britain, a campaign to inspire tens of thousands of would-be
entrepreneurs to strike out on their own.

For years, Jones toiled away as one of the nation’s many “5-9” entrepreneurs — growing her fledgling
consultancy businesses around her day job by rising early, labouring late and sacrificing her personal life.

Now, she is one of eight entrepreneurs teaming up with Microsoft, Google, eBay, BlackBerry, Barclays,
Coutts and 50 other large firms in a government-backed scheme to offer financial help, advice and
contacts to start-ups.

“We want to banish the fear factor,” said Jones. “50% of people want to start a business, but only 5% do
it. People worry it will cost the earth that they’ll have to remortgage their home or lose their job. But
actually now is a fantastic time to start a business and you can do it for as little as fifty pounds.”

Jones could be the embodiment of the entrepreneurial spirit David Cameron and George Osborne hope
will finally send Britain’s stop-start economic recovery soaring off the launch pad and create work for
450,000 public sector staff expected to lose their jobs over the next five years.

Last Wednesday’s budget and the accompanying Plan for Growth was all about business-friendly tax
breaks. Vince Cable, the business secretary, told The Sunday Times this weekend that the coalition had
no other option to boost the recovery. “We have very little room to manoeuvre and we can’t use the
conventional way that most governments have tried to stimulate the economy,” he said.

“We can’t do a big fiscal injection, much as the Labour party would love to. It’s not feasible. The markets
just wouldn’t take it. Interest rates are low, so we are going to have to use an aggressive approach on the
supply side.”

The big question is whether tax cuts, planning reforms, enterprise zones and slashing red tape actually
help businesses big and small grow.

As the chancellor opened his budget speech on Wednesday, the sharp-eyed might have spotted Lord
Lawson, the ghost of budgets past, gazing down from the gallery. During six years as Margaret Thatcher’s
chancellor, Lawson fuelled the 1980s recovery and boom by simplifying and cutting taxes — not an
option for No 11’s current incumbent.
Many in the City had in fact billed this budget, the third in a year, as a “non-event” because the
chancellor is so wedded to spending cuts unveiled in last November’s comprehensive spending review.

Nevertheless, there was still plenty for big business to cheer.

The biggest surprise was another corporation tax cut, with the headline rate set to fall from 28% to 26%
next month and again by a penny in the pound every year until 2014, when it will stand at 23p — the
lowest of any G7 country.

How can the government justify this just as millions of families are enduring tax rises and benefit cuts?

“The populist view is that companies are some kind of pot of gold that you can raid for tax revenue
without any kind of economic harm ... but it does do harm,” Cable said.

“If you increase corporation tax what happens in the real world is a reduction in wages and
employment.”

The City was less pleased with a clampdown on “disguised remuneration”, used by many in the Square
Mile to avoid the 50% tax rate or the £1.8m pension cap.

However, the chancellor reiterated that Labour’s 50% top rate may be axed in 2013, when the public
sector pay freeze ends. A feared crackdown on non-doms turned out to be an invitation for those who
benefit from this to open their wallets slightly wider. Osborne also announced measures to simplify the
tax system, citing the abolition of 43 reliefs and more than 100 pages of rules.

Not everyone was impressed. “Much of what George Osborne said was hot air: consultation about this
and that, tinkering at the edges, vague ideas for re-inventing the wheel but little of substance,” said
Andrew Shaw, head of international tax at BTG Tax, the accountancy group.

“He may have removed 100 pages of tax legislation, but they were pages nobody looked at. How many
taxpayers were interested in Nationalisation Schemes from the 1946 Finance Act?”

There was applause for changes to the “controlled foreign companies” tax regime, which sees businesses
taxed on royalties, interest and other offshore income. Multinationals will save £900m a year from more
relaxed rules.

By Thursday morning, Sir Martin Sorrell said he’d seen enough. The chief executive of the WPP
advertising empire announced he would look at moving the company’s tax base back from Ireland. The
publishing firms UBM and Informa are also considering a return.

Only banks, in effect excluded from the corporation tax cut, and North Sea oil companies, subject to a
multi-billion pound windfall tax to subsidise lower fuel duty, have been left seething by the budget.

Howard Shore, chairman of corporate finance firm Shore Capital, said the crucial fact was that the
chancellor “held his nerve” and remained committed to deficit reduction.
“He had to produce a budget that was fiscally neutral. If he had done anything to upset the markets it
would have pushed up the real interest rates for everyone. But it’s small businesses that will create the
jobs we need in this country.

“Would I want to be starting a business today with all the rules and regulations? It’s tough. That has to be
a real priority.”

The budget was certainly peppered with measures designed to help small businesses and start-ups.

Twenty-one deprived areas will be designated enterprise zones, with lower business rates and faster
planning decisions to encourage start-ups. Whether this Thatcherite policy creates jobs and business or
simply moves those from other parts of the country remains a matter of fierce debate.

Business groups did like the chancellor’s pledge to implement Lord Young’s stern recommendations on
health and safety laws, and his commitment to stamp on no-win no-fee law firms.

However, there was disappointment with a “moratorium” exempting all start-ups and firms with less
than 10 employees from red tape for the next three years, since it only applies to new and domestic
regulations. By contrast, the fuel duty cut will help a lot of small businesses, 70% of which say they could
not function without their cars or vans, according to the Federation of Small Businesses.

The most popular policies aimed at this part of the economy were the doubling of the lifetime limit of
entrepreneurs’ relief from £5m to £10m and a relaxation of the rules on enterprise investment schemes
and venture capital trusts — two key ways for small businesses to attract investment. It will take years,
decades even, to judge what these policies have achieved

Osborne also acted on recommendations by Sir James Dyson, the inventor of the bagless vacuum cleaner,
to boost research and development tax credits from 140% to 200% in April and to 225% next year.

“These changes will encourage many young people to get involved in technology and science,” Dyson told
The Sunday Times this weekend.

“They also show the government is thinking long-term — you don’t get quick results in R&D spending.”

Therein lies the problem of judging the worth of many of these measures designed to boost growth.

It will take years, decades even, to judge what these policies have achieved.

Critics say this is particularly so for proposed changes to the planning system, such as letting developers
turn offices into flats without consulting locals and fast-track land auctions to speed planning.

Many in the housing industry are mystified as to how the coalition’s pledge of a “radical” reform of the
planning system can coexist with their commitment to giving greater power to councils and local people,
whose nimbyism has obstructed developments for years.

Nevertheless, there will be plenty of business-friendly policies for the prime minister to cite to Jones and
her fellow entrepreneurs at the launch of Start-up Britain tomorrow.