March Budget 2015: Good news for entrepreneurs?

As TEN director Philip Salter writes in his Forbes column this week, the one thing that stands out from this year’s Budget is the Chancellor’s relentless commitment towards supporting UK entrepreneurs.

What we have, he writes, is a government obsessed with “innovation” and “growth”. The Budget contains details on more incubators, the introduction of an apprenticeship voucher – and, even more positively, the removal of the requirement that 70 per cent of the funds raised through SEIS must have been spent before EIS or Venture Capital Trust funding can be raised.

Octopus Ventures’ George Whitehead told TEN that such measures will “sustain the very strong entrepreneurial environment” that has been built in Britain. Now, the country just has to weather the inevitable political uncertainties in the run up to and after May’s General Election.

Why we should welcome those who can make our country greater

For many firms in my constituency, a flexible immigration policy is the litmus test for the proposition that the UK is ‘open for business’.

It was therefore only a matter of months into the coalition’s five year term before the wisdom of its immigration cap came into question. No one doubted the popular appeal of this sound-bite policy. But was it possible to reduce net annual migration to the ‘tens of thousands’ without causing economic harm?

The public commitment to this policy goal has always disguised tensions over it within the coalition government. The Treasury and Business Department understand that the free flow of talented professionals, entrepreneurs and students to the UK is vital to delivering economic growth. But the Home Office has always pushed back against attempts to loosen the rules, confident in its strong mandate from the public.

It goes without saying that immigration reform of some kind was needed. The Home Secretary has made great strides in cracking down on bogus colleges, sham marriages, health tourists and the like. The government is also making progress in addressing the ‘pull’ factors that make Britain appeal to benefits tourists – thought not fast enough for some.

However as February’s migration figures demonstrated, the coalition’s cap has been undeliverable – net migration has risen by 42% to 298 000 in the past year alone. This was always going to be the case for so long as we had virtually unrestricted movement of EU citizens. What is a mark of this nation’s success – the economic growth that is attracting young workers from across the continent – has become a badge of this government’s failure.

What is worse, however, is the consensus from businesses and higher education providers that the cap has caused damage to the UK economy and Britain’s image abroad. I represent a central London seat that contains many of the country’s top businesses and three of its best universities. For several years now they have highlighted to me the hurdles and hoops placed in their way of bringing into the UK, or retaining, highly talented individuals whether students, post-graduate researchers or leading academics.

They cannot understand why this government has led a clampdown on precisely the type of migrant that we want to attract – the skilled student, entrepreneur or worker from natural growth markets such as China and India, or the English-speaking professional from allies such as Australia, the US and Canada. Indeed they fear we are training and educating some of the world’s brightest international students, and then discouraging them from staying here to benefit existing businesses or to set up their own enterprise.

It is a cliché that a reputation takes years to build but can be lost in an instant. However, the UK has risked losing its hard-won standing as a country that welcomes trade, investment and talent from around the world as a result of the cap.

It is for that reason I set up Conservatives for Managed Migration in March last year, a group that hopes to promote a calm, reasoned debate about immigration both within and beyond the Conservative Party. As we approach the General Election on 7 May, we have been calling on the Party to drop the idea of an undeliverable cap of numbers.

However if the Party insists on keeping this type of target-based policy in place, we have been calling for students to be removed from the net migration figure. We should also like to see a partial reinstatement of the Post-Study Work Visa, focusing on specific subjects to address skills gaps. This visa’s removal in 2012 has had a detrimental impact on the graduate jobs market, driving many of the most talented students back to their home countries when they are ready to join the workforce. It had previously enabled graduates to seek employment without having a sponsor, but now students who wish to stay in the UK after their course have to prove they have a job offer from a government-approved sponsor employer. Alternatively they can apply for independent status such as tier-one entrepreneur, but that requires a minimum £50,000 investment (something we might perhaps look to lower for talented graduates who wish to stay and develop business ideas).

To encourage English-speaking professionals, such as Kiwi accountants or American lawyers, we should like to see a Professional Mobility Programme as part of the current Tier 2 entry arrangements. Beyond that, we are really encouraging the Home Office to find a way of dealing quickly and efficiently with applications. I receive a steady stream of complaints about the Border Agency from business constituents and I believe many of the concerns about our immigration system could be addressed if we simply got to grips with the processing system.

Thankfully the government is alive to many of the concerns we have raised. Last month, for instance, HQ-UK was launched, an unashamed bid to get US tech companies to base their European headquarters in London. The government programme includes a so-called ‘concierge service’ that speeds up visa applications and gives priority border control at airports. We also have the Sirius programme from UKTI which is aimed at international graduates who want to start and grow a business in the UK.  This pioneering scheme invites talented young entrepreneurs with world-class start-up ideas to get their business off the ground in the UK, helping boost Britain’s enterprise community, creating jobs and inviting foreign investment.

Immigration will not go away as an election issue over the next 51 days. So it is up to all of us here to keep steadfastly and patiently making the case that the UK’s economic future depends on our taking the right approach towards those who wish to work, study and contribute here. Flexibility in a country’s immigration system is now part and parcel of being an engaged member of the global economy. International businesses and business people, not to mention academics, expect to be able to move with relative ease between open and dynamic global cities, just as many mobile Britons would anticipate being able to work in Hong Kong, New York, Shanghai or Mumbai for a spell. Similarly, students who come here when they are young become ambassadors for the UK for the rest of their lives.

These are precious advantages we should not throw away. Simply put, those countries which restrict the flow of talent risk economic isolation in an age of globalisation.

Mark Field is MP for the Cities of London and Westminster and Founder of Conservatives for Managed Migration. This article is based on a speech delivered at a recent Power Lunch.

Budget reactions

From the moment the Chancellor sat down yesterday, there was a rush for commentators to do what they do best: comment. However, until we employ artificial intelligence for the job, there just isn’t time to read and analyse the 124 page document, the many other relevant documents, as well as reasonably crunch the numbers before the end of the day. In truth, you may want to wait until the Sunday papers for a more detailed reaction.

That said, if you’re keen to get the headline announcements, I’ve written a short article for Forbes here, and following are some other useful reactions outlining how the Budget impacts entrepreneurs:


Entrepreneurs’ Relief is worth defending

Defenders of Entrepreneurs’ Relief are on the back foot. In the corridors of power, rumblings have been heard that this tax relief is under threat. As entrepreneur Guy Mucklow writes in City A.M.:

“Originally introduced by Labour seven years ago, the Entrepreneurs’ relief lifetime allowance was doubled by the coalition government to £10m in March 2011. However, according to a report by the National Audit Office in November 2014, the cost of the relief has increased to almost £3bn. Subsequent political scrutiny could put its future in jeopardy.”

Entrepreneurs’ Relief offers business owners a lifetime allowance of £10m of gain taxed at the reduced rate of 10% for individual shareholdings of over 5%. Since its introduction in 2008 – when it replaced Taper Relief – the allowance has been raised to £2m, 5m, and finally its current level of £10m.

Its success may well contribute to its downfall. The £3bn has been “lost” because entrepreneurship is flourishing in the UK – partly because successive government have realised how vital entrepreneurs are and therefore offered people tax incentives to take the leap. If the idea is to encourage entrepreneurs, it is short-sighted to bemoan the loss of tax revenue (an inevitable by-product of the policy’s success).

In our Manifesto, Tim Hames of the BVCA argued forcefully that we should be extending Entrepreneurs’ Relief:

“If the Government were to discard the 5% requirement, lure business angels yet further into the start-up scene and eliminate the current cap altogether, it would revolutionise the tax treatment of entrepreneurs in Britain. The howls of anguish from the likes of Berlin, Dublin and Luxembourg would be audible in the Treasury.”

Getting rid of the 5% equity requirement should be prioritised in any move pushing for its extension. It may be pushing entrepreneurs to exit their companies or not take on extra funding in case they get diluted below the 5% threshold. Labour may be amenable. Its March 2013 Small Business Taskforce report stated:

“Extend entrepreneurs’ relief beyond capital gains to dividends, in order to remove the incentive for entrepreneurs to dispose of their businesses rather than grow them. Reduce the 5% threshold for entrepreneurs’ relief to 1% or below to allow more employees to benefit from investing in the high growth companies they work for.”

In contrast, the Liberal Democrats’ 2013 autumn conference, a policy paper entitled Fairer Taxes, Policies for the Reform of Taxation was endorsed by the party. It included the following statement:

“We wish to focus Entrepreneurs’ Relief to better serve the purpose for which it is intended; incentivising entrepreneurs and start-up business owners, and prevent it from simply being used as a way for wealthy investors to reduce their tax bills. We would therefore increase the shareholding requirement to 25%.”

Extending it to 25% would definitely incentivise entrepreneurs to exit their companies early. There is no earthly reason why it should be raised from 5% and every reason why is should be cut. Britain is backing entrepreneurs – now isn’t the time to take the foot off the pedal.

The TEN Interview: How Nutmeg’s Nick Hungerford spiced up the investment management industry

Nutmeg is an online discretionary investment manager that builds and manages portfolios for all levels of wealth (the minimum investment is £1,000).

Within each portfolio, clients get a mix of up to ten asset classes, ranging from private equity to gold. Nutmeg’s founder is Nick Hungerford, a former Stanford MBA student who grew up wanting to be a teacher. He talks to TEN’s director Philip Salter about the ways in which the financial services landscape will change in the next few years – and how he is continuing to attract clients.

Read the full Forbes interview here.

The TEN Interview: Philip Salter talks to Enterprise Nation’s Emma Jones

Our director Philip Salter chats to Enterprise Nation founder Emma Jones MBE about what UK small businesses want from the General Election.

Enterprise Nation was founded in 2005 to create an inspirational environment for business owners and would-be entrepreneurs, a supportive community, informational books and events, and a campaigning voice to help small businesses in the UK flourish.

Read the full interview in Philip Salter’s Forbes column here.

One way to narrow the North-South divide

We all know there’s a North-South divide, but from a policymakers perspective it’s not clear what – if anything – we should be doing about it.

To a significant degree, the relative economic success of London and the South East is due to factors beyond the powers of politicians to rebalance (without simply dragging the country’s capital down). The decline of manufacturing, the rise of London and Cambridge as tech hubs, and the cultural pull of the metropolis cannot be overturned – no matter how much money the government throws at it.

But even though we can’t turn the country upside-down, given that most of us would prefer wealth and opportunity to be a little more evenly distributed, we should try to identify instances where we are prejudicing the South at the expense of the North. Here, one thing stands out above all others: the decision to postpone the revaluation of business rates.

As Simon Danczuk MP wrote a few years ago in the Guardian: “The problem is in my constituency – and no doubt many others – some commercial property values have fallen by up to 40 per cent since 2008.” For Danczuk’s Rochdale constituency, the FT reported that “a study by Liverpool can you buy ativan online university showed that if business rates were set using up-to-date property values, shops in Rochdale would experience a 65 per cent fall in rates bills.” In contrast, London shops would see a 52 per cent increase.

These costs weigh heavily on the North. Of the top 10 town centres with the greatest percentage of empty shops, seven are in the North East or North West. The Daily Mail reported last year that the North West is suffering from 16.9 per cent empty shop space, versus London’s 7.9 per cent. In Hartlepool, County Durham, 27.3 per cent of stores in the town are up for rent.

Demanding regular revaluations shouldn’t be confused with a call to cut business rates. As has been argued forcefully on this blog, business rates are about the least worst form of taxation: “Repeated taxes on property, that is business rates, have the lowest deadweight costs of any form of tax. The only one that could be better is a proper land value tax.” Nevertheless, landlords and the entrepreneurs that want to use the abandoned spaces deserve rates that reflect the value of the land – the first step of a Northern regeneration should be a revaluation.

Green Belts increase business rents too

If you’ve picked up a newspaper or turned on a radio or TV today then the chances are you’ve read or heard about the Adam Smith Institute’s latest research paper – The Green Noose: An analysis of Green Belts and proposals for reform.

A section of the paper considers the impact of Green Belts upon businesses. As author Tom Papworth explains, increasing the cost of business premises increases the costs of running businesses, which pushes up prices. This reduces the real disposable incomes of households, while putting UK businesses at a competitive disadvantage by shifting production overseas.

A few years ago, I interviewed the inventor of the iconic Brompton bicycle. While visiting their factory in Wandsworth a couple of television crews from the BBC and ITV turned up to record the conveyor belts and workers in action. It turned out this was a common occurrence, principally because it’s the only manufacturing taking place on that scale in London (and the television crews didn’t want to travel any further). According to Papworth, London’s Green Belt could be the reason Brompton is that last factory standing:

“Evans and Hartwich suggest that land-intensive industries, such as manufacturing, have declined rapidly, because many have fled the country to locate themselves in a country with lower land prices. If correct, this would be a major challenge to the conventional view that deindustrialisation was the result of supply-side reforms and monetarist policies in the 1980s, instead suggesting that our land use planning laws bore a substantial amount of responsibility for the decline of UK manufacturing in the past half century.”

This makes sense. LSE Geography Professor Henry Overman cites some concerning research in an useful blog looking at the case for building on Green Belts:

“Green Belts increase office rents. Cheshire and Hilber (2008) carefully document how planning restrictions in England impose a ‘tax’ on office developments that varies from around 250 per cent (of development costs) in Birmingham, to 400-800 per cent in London. In contrast, New York imposes a ‘tax’ of around 0-50 per cent, Amsterdam around 200 per cent and central Paris around 300 per cent.”

If enacted, the paper’s suggested reforms would provide affordable housing to Generation Rent, more competitive business rents, and the possibility for more manufacturing entrepreneurs to run their businesses out of this country. What’s not to like?

One reason why we get bad policies

If the What Works Centre for Local Economic Growth didn’t exist someone would have to invent it. It analyses policies to see which are the most effective in supporting and increasing local economic growth. Although its focus is local, most of its findings have national implications.

So far, the centre has looked at a number of policy areas. A theme cutting across all of its findings is that to a large extent we don’t really know what works. Too often, the evidence is inconclusive or lacking.

On access to finance:

  • We found very few studies that look at the impact of schemes on both access to finance (direct effect of the scheme) and on the subsequent performance of firms (indirect effects of the scheme).
  • While most programmes appear to improve access to finance, there is much weaker evidence that this leads to improved firm performance. This makes it much harder to assess whether access to finance interventions really improve the wider economic outcomes (e.g. productivity, employment) that policymakers care about.
  • As with other reviews, we found very few studies that gathered (or had access to) information on scheme costs. As a result, we have very little evidence on the value for money of different interventions.

On business advice:

  • There is insufficient evidence to establish the effectiveness of sector specific programmes compared to more general programmes.
  • We found no high quality impact evaluations that explicitly look at the outcomes for female-headed or BME businesses.
  • We found two high-quality evaluations of programmes aimed at incubating start-ups. Both programmes were targeted at unemployed people and show mixed results overall. However, there is a lack of impact evaluation for Dragons’ Den-type accelerator programmes that aim to launch high-growth businesses and involve competitive entry.

On employment training:

  • We have found little evidence which provides robust, consistent insight into the relative value for money of different approaches. Most assessments of ‘cost per outcome’ fail to provide a control group for comparison.
  • We found no evidence that would suggest local delivery is more or less effective than national delivery.

As the above suggests, on key areas of government policy we lack evidence of what works, particularly when it comes to determining value for money. Given the billions spent on various schemes this simply isn’t good enough.

The way to move forward from this is to work backwards, ensuring that a robust framework of analysis is build into each and every government programme so that we can know how successful (or otherwise) each intervention is. Crucially this should be done in a way that lets it be compared by the same metrics also being measured in other schemes trying to achieve similar outcomes.

Residing in the economic departments of our universities are the brains to do exactly this – to date though, policymakers have lacked the gumption to systematically experiment, measure and evaluate what works. Until they do we will just keep getting ad hoc policies with enough Rumsfeldian known unknowns to make an economist cry.

The TEN Interview: Philip Salter speaks to YPlan’s Rytis Vitkauskas

YPlan, co-founded by Rytis Vitkauskas and Viktoras Jucikas, is the perfect business for the FOMO generation.

The app helps users decide what to do that night, by matching them to tickets for a selection of West End shows, music where to buy ativan online gigs, food tastings and gallery exhibitions. Almost 90 per cent of YPlan’s sales are made within 48 hours of an event starting.

You can read the full interview in our director’s Forbes column here.