Startup Manifesto: Reform R&D Tax Credits so that they are fit for a modern digital economy

Policy 12: Reform R&D Tax Credits so that they are fit for a modern digital economy

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

When it comes to R&D spend the UK is lagging behind its peers. According to the latest spending data, we only rank 11th in the EU and 19th in the OECD. Although the government has set a target of achieving 2.4 per cent of GDP for R&D investment by 2027, if R&D investment continues at the current rate of growth the UK would not reach this target until 2053... 26 years too late. If we are to meet the 2.4 percent of GDP target we must increase the amount of R&D work carried out by startups.

The UK’s tech sector is growing over one-and-a-half times faster than the rest of the economy, yet tech startups are currently being denied the right to R&D Tax Credit rebates for a range of technologies that are vital to their innovations. 

Take data for example, the lifeblood of any tech startup. Since it isn’t classed as a ‘consumable’ in the R&D process, the cost of data sets can’t be claimed under R&D tax credits. Yet it’s integral to R&D projects of many tech startups, including AI and machine learning. 

Another issue of major hindrance to tech startups and scaleups concerns cloud services. Startups rely exclusively on cloud providers to work with large datasets, train new algorithms and deploy sensors at scale when developing their products. However, more often than not, these costs are not accepted in tax credit applications. It is vital that startups have access to the computing power they need to build world-beating products and services.

Similarly, over 80% of startups undertake significant amounts of user interface (UI) and user experience (UX) research which they considered a vital part of their R&D processes. At the moment, startups are unable to claim fully for the costs they incur building innovative solutions to the front end of their product. Tech firms won’t market a product unless it’s been tested properly with users; they need a clear understanding from HMRC that UI/UX work is critical R&D work, and should be included in the credit.

We know that R&D is going to be critical for the future of the UK economy. We know that startups with limited capital need to invest early to be able to build world-beating products. And we know that the system needs to be updated. The next government must look at modernising this great scheme so that it is fit for the digital age.

Startup Manifesto: Unleash pension fund capital by adjusting the pension charge cap

Policy 10: Unleash pension fund capital by adjusting the pension charge cap

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

For many entrepreneurs, seeking investment from abroad is not a strategic decision — it happens simply because the funds they need to fuel growth are not available in this country. Venture capitalists (VCs) completed £63.7bn of deals in the US but just £5.8bn in the UK in 2017. While the steady flow of investment from overseas can be seen as a vote of confidence in the UK, it does mean that the fruits of the rapid growth delivered by our own startups will be enjoyed offshore.

The government has spent several years examining how to release some of the cash held in Defined Contribution (DC) schemes for investment in fast-growing startups. The next government must follow through on this work as this progressive approach will help the UK to mirror the large amounts of growth capital available in the US and China. In the US, for example, 98% of venture capital funding comes from institutions such as pension funds and insurance companies. This figure stands at just 55% in the UK.

With assets in UK DC schemes expected to exceed £1 trillion by 2029, diverting just 5% of that to venture capital firms would equate to a £50bn funding boost for startups. The British Business Bank has already undertaken a study which found that a 5% portfolio allocation in startup investments appropriately balances against the risks of investing in illiquid assets - thus protecting retirement savings. 

Unfortunately DC funds are currently unable to invest in startups, through VCs, because of a statutory 0.75 per cent cap on annual fees. VC fees are significantly higher than passive asset classes with lower returns (equities) due to the costs of managing an unlisted portfolio of companies, which translates into a performance fee. 

By adjusting the annual fee cap, to account for performance fees, the next government can unleash this growth capital - hugely benefitting savers at the same time. Research has shown that retirement savings for an average 22-year old could be increased by as much as 7-12 per cent, and the average 45-year old could see an increase of 6-7 per cent. This would ensure that a wider group of people reap the rewards from some of the UK’s fastest growing businesses, rather than the profits remaining concentrated in an ever-smaller group of wealthy investors and institutions.

Startup Manifesto: Encourage the British Business Bank to provide more risk capital

Policy 11: Encourage the British Business Bank to provide more risk capital

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

The government helps startups to grow and scale by providing them with patient capital through the British Business Bank (BBB). This is structurally achieved through two “fund of funds” schemes - British Patient Capital (BPC) and Enterprise Capital Funds (ECF) - which deploy capital to various venture capitalists (VCs) depending on their fund size. In theory this structure should spread capital across a broad range of investors and, therefore, a wide range of innovative companies.

Although the barriers to entry are meant to be lower for VCs applying for ECF access, in practice there is little difference in the functionality of the ECF to BPC. The BPC focuses exclusively on well-established VC managers who have already been successful in raising capital without public help. Whereas the ECF currently writes marginally smaller cheques into marginally less established VC managers operating slightly smaller funds. Since both primarily support funds larger than £30m, neither are helping to nurture new emerging managers or investment diversification. 

For the ECF to fulfill its strategic objectives, it must be reformed to become more ambitious in its policy goals, improving diversity and its added value to the VC ecosystem. To do so there needs to be more of a focus on backing genuine emerging fund managers. The BBB should nurture smaller funds of £5m+ through the ECF, with more established fund managers providing mentoring and training programmes for newer fund managers in exchange for their BPC support. These measures would help diversify the VC ecosystem, which would in turn improve the investment pool for startups. 

In order for the BBB to provide effective long-term patient capital, it is also vital that it is given the latitude to be genuinely risk taking. This will require the BBB remaining fairly independent from central government to ensure that long-term investment horizons are not subject to political whim and that success is not deemed by an artificial required rate of return. This will help to ensure that the BBB can become a world class state-backed funding vehicle. 

Startup Manifesto: Reform EIS and SEIS advanced assurance

Policy 9: Reform advance assurance for EIS and SEIS to unlock more investment in high-growth startups

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’re sharing the policies on our blog. To read the full manifesto, click here.

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are targeted tax reliefs designed to promote investment into innovative startups and scale-ups. They offer substantial tax relief and de-risk investments in early stage businesses who often face considerable difficulty in raising funds. In the 2017/2018 tax year, 3,920 startups raised £1.9bn in investment under EIS, alongside 2,320 startups raising £182m under SEIS. Most business angels (58%) say they would not have invested at all, if the reliefs were not available.

In recognition of their vital role in the UK’s entrepreneurial ecosystem, the next government should commit to maintaining and improving the schemes. In particular, the government should seek to streamline the application process for advance assurance from HMRC, which investors typically insist upon before agreeing to invest. Although the government set a target of 15 working days to approve each application, the waits can often last more than three times longer. Startups often need to access capital quickly and 6 to 8 week waits can place otherwise viable businesses under significant pressure. 

There are a number of measures the government could take to substantially shorten wait-times. For instance, they could work with investor organisations to develop standardised EIS/SEIS pre-approved Shareholders’ Agreements and Articles of Association to reduce the amount of time inspectors must spend on each application. Companies using standardised documents could qualify for a fast-tracked decision. They could also create greater certainty, with regards to wait times, by allowing applicants to track their application status online. 

The advance assurance process is necessary under the status quo as there is no mechanism to make corrections post-investment if they fall foul of HMRC’s interpretation. If there were provisions to make such corrections, it could be possible for lower-risk applications (for instance, those using pre-approved standard documents, within the 7 year limit, and not in certain sectors) to be outsourced to accredited independent advisers.

HMRC should also remove the requirement that investors should be identified in applications for advanced assurance, in order to prevent ‘speculative applications’. While this restriction was a well-intentioned measure designed to reduce the backlog for the advance assurance process, it has created an unwelcome ‘chicken and egg’ situation, where startups need advance assurance to attract investors, but can’t get advance assurance without an investor.

Up to Eleven

Britain formally leaves the European Union at 11pm tonight. This isn’t the real deal though – unless you define leaving as having a blue passport and a fistful of grammatically questionable Brexit coins.

Not a lot will change during the transition period. There won’t be any additional tariffs or checking of goods, freedom of movement still applies, and you’ll even still be able to queue in the areas reserved for EU arrivals when travelling.

The clock is ticking though. The UK is now allowed to start formal trade negotiations with the likes of the US, Australia, and, of course, the EU. Boris is supposed to get an agreement with the EU sorted sharpish so we can leave relatively smoothly by the end of the year. Many experts think it’s a tall order.

A majority of Britain’s business leaders are still clamouring for some clarity. As the latest survey from the Institute of Directors reveals, over 55% of its respondents believe they will “only be able to make planning and investment decisions with certainty when we understand our future relationship with the EU”, as opposed to 35% who think “this withdrawal agreement will give my organisation the certainty needed to make planning and investment decisions.”

It also looks like an EU trade deal trumps all others for Britain’s business leaders, with 61% thinking negotiations on the UK's post-Brexit trade and economic relationship with the EU is more important, versus 20% prioritising trade deals with non-EU countries, like the US, after Brexit.

MAC attack
The Migration Advisory Committee – which advises the government on visa reforms – has delivered its report on a points-based system and salary thresholds.

While the Conservative manifesto called for an Australian-style points-based system to control immigration, the MAC has mostly rejected this idea – instead, recommending an evolution of the current system.

While it suggests elements of a points-based system could be used for a minority of skilled workers coming to the UK without an arranged job, most people would need a job offer that meets a minimum salary threshold, as is currently the case for non-EU migrants.

The report recommends that the current £30,000 cap for non-EU workers be reduced to £25,600. However, this would be higher for some industries (calculated at the 25th percentile of average salaries). While it’s recommended that immigrants under 26 and recent graduates from UK universities should be granted permission to work in the UK with much lower salaries – a minimum of £17,920 per year.

In general, the report should be welcomed by entrepreneurs. However, this isn’t a solution for everyone. Business owners in the hospitality sector, for example, which currently employ a lot of EU workers won’t meet the threshold.

As well as pushing prices up and standards down for consumers, this could damage areas of the economy that are currently flourishing.

Taking an example of an industry I know well, the UK is currently the best place in the world for bars, with London, arguably better than New York. For cultural reasons, Italian and central and eastern European born migrants dominate the bar scene. Those at the top would easily pass the earnings threshold, but they all started as a ‘bar backs’ and worked their way up. Cutting off this pipeline of talent would diminish this industry.

What is true for bars is true for hundreds of skilled roles that fall below the threshold. Some of this could be mitigated by a temporary short-term workers' route or by younger workers at a lower threshold. However, the thousands of pounds it costs for the Tier 2 licence, visa fees, legal fees and immigration skills charge would price most employers and employees out of the market. Also, the system would need to set out a clear path for those coming who want to stay longer.

Freer markets are more efficient, even in people. Ultimately, no system will be better than free movement, which will end (assuming there is no extension) on 1 January 2021. The MAC’s report should be encouraging for most entrepreneurs, but the government may just ignore it, even though they will be hard-pressed to come up with a better workable alternative in the time available.

So what should entrepreneurs be doing now? EU, EEA or Swiss citizens need to apply for the EU Settlement Scheme to continue living in the UK after 30 June 2021. Any EU citizen who moves to the UK before the end of the transition period can apply – so it’s not too late for anyone who might want to move here with a view to staying. It’s free to apply and the deadline is 30 June 2021.

Deep dive
The Startup Europe Partnership (SEP) has got in touch to see if any of you would like to apply for a place at the final Scaleup Summit on 26/27 March 2020 at the London Stock Exchange.

It's a two-day event for international corporates, investors and scaleups operating in specific verticals. It will feature deep dives into Digital Construction, Industry 4.0, Oil & Gas, e-Energy Solutions, Fintech/Insurtech, Telcos, and Cybersecurity. Apply for a place here.

Read the whole newsletter here, and subscribe here.

Right Said Fred

Our latest report, Cashing Out, hit the internet this week. If you can’t read the whole thing, the best explanation is by the author himself, Fred De Fossard, in Wednesday’s City AM.

As I argue in Forbes, cash is in terminal decline, with over half of Britons carrying less than £10 in cash on them at any one time. Less than a quarter of retail payments are made in cash; cashpoints are disappearing from the high street; and a wave of small businesses are turning against handling cash altogether.

Handling cash costs British businesses on average over £3,000 per year. Cash is a faff. As Annabel Denham explains on Medium, “it needs handling, insuring, and transporting physically – and it will always be a target for thieves.”

In response to the rise in card-only businesses, major US cities have banned cashless businesses, and senior British politicians have called for their abolition in the UK. This reaction is understandable – but it’s not the right one.

It’s understandable because Britain still has 1.23 million people in the UK without a bank account. The so-called unbanked are largely the poorest people in our society. But as is all too common in politics, the ban is a cover for a larger public policy failure.

Perhaps ironically, it’s technology that is offering a real way forward. 

As Fred argues, “instead of preserving cash indefinitely, the government should encourage innovation to improve financial inclusion by expanding access to digital finance.” And in a forthcoming article for CapX, Sam Dumitriu explains: “Open Banking-enabled fintechs are addressing the problem. For instance, apps like Pockit are directly catering to the unbanked and Monzo now allows you to open a bank account without a fixed address. Better data, including from rental payments, will allow the unbanked to build credit quicker and access finance.”

The government had a role to play as the enabler behind Open Banking, and schemes like the government-backed Rent Recognition Challenge, a £2 million competition to develop applications that help renters boost their credit scores, access credit and get on the housing ladder, are in the right spirit.

Abolishing card-only businesses would be a retrograde step which would harm a new wave of entrepreneurs, who have embraced the opportunities of the digital economy, and are responding to customers who want quicker, efficient, electronic payments.

The UK economy turns on electronic payments. The key is to give as many people access to new technology as possible, rather than trying to preserve the declining use of cash. It is only by embracing technological innovation in banking and improving the provision of financial services that financial inclusion can be meaningfully increased.

Come write with us
Fred approached us with the idea for Cashing Out. If you are a researcher or know of any other researchers who would be keen to write for us, get in touch. As we scale, there will be increasing opportunities to contribute.

Access all arrears 
Talking of research, we are just getting started on a project looking at access to finance for SMEs – not a small subject! This aims to feed into the 11th March Budget and inform our policy work for years.

We already have plenty of ideas – many of which came from entrepreneurs in our network. But let me know if you have any burning issues you think we should be dealing with, and if you would like your business to be used as a case study for why we need that change. 

We already have improvements to SEIS/EIS, R&D Tax Credits, Innovate UK, bank lending, EMI, StartUp Loans, crowdfunding, venture capital and the New Enterprise Allowance in our sights.

Read the whole e-bulletin here, and sign up here.

Rise of Cashless Businesses is Nothing to Fear

Our new study argues that the decline of cash is good for small businesses. Government should avoid preserving it at the expense of digital payments

• Cash use is falling: a decade ago six out of ten payments were made by cash, today it is two in ten, and it is predicted to drop to fewer than one in ten over the next decade;

• Cash is cumbersome and expensive for small businesses – handling cash costs British businesses roughly £3,000 per year on average;

• Some UK businesses – in particular independent shops – have decided to forego cash entirely, and no longer deal with its associated costs, inefficiencies and risks;

• However, this trend has been criticised by politicians and regulators around the world. The British government has committed to preserving cash in the economy for the foreseeable future. Some US cities have gone further and banned businesses from going cashless entirely;

• This is the wrong approach: banning card-only stores will burden independent shops, inadvertently advantaging cashless online retailers like Amazon; 

• Financial inclusion is a primary reason behind attempts to ban cashless shops. But bans will do next to nothing to materially improve the fortunes of the unbanked. The report argues that fintech innovation can expand inclusion, not limit it; 

• For example, some challenger banks now enable new customers to open accounts without a fixed address, allowing new customers to use a friend’s house or a shelter instead. Rather than abolishing card-only businesses, politicians should allow SMEs to innovate, and instead focus on bringing the benefits of the cashless economy to all.

Cashing Out, a new report from think tank The Entrepreneurs Network, finds that ditching cash is helping independent shops survive in challenging retail conditions.  

Cash is in terminal decline: a decade ago it was used in six out of 10 payments. Forecasters predict that this will drop to fewer than one in 10 over the next decade. Over half of Britons carry less than £10 on them at any one time, less than a quarter of retail payments are made in cash, and a wave of smaller companies are turning against handling cash altogether.

This is a welcome development for small businesses. The day-to-day costs of handling cash sit more heavily on independent high street shops, who face stiff competition from online retailers such as Amazon. Cash is a physical product which needs handling, insuring, and transporting physically, and it will always be a target for thieves. Handling cash costs each UK small business over £3,000 per year, on average, while the rise of low-cost card payments offer them a significant opportunity to reduce their overheads.

Some SMEs have decided to forego cash entirely, in part due to rising insurance costs in the wake of multiple break-ins. However, this trend has been criticised widely. 

Major US cities have banned cashless businesses and senior British politicians have called for their abolishment in the UK – in the interests of financial inclusion. Philadelphia last year announced a ban on card-only retail businesses. Lawmakers in New Jersey have passed a similar bill, and attempts to do the same are underway in New York City, Washington DC and Chicago. 

And in response to the Access to Cash Review, published in March 2019 and supported by Link (the largest operator of ATMs in the UK), then-Chair of the Treasury Select Committee Baroness Nicky Morgan said: “free-to-use cash machines are disappearing at an alarming rate. On top of this, some firms’ insistence on the use of non-cash forms of payment may act as a social barrier. Any significant reduction in access to cash is unacceptable.”

Yet Cashing Out finds that this would be a retrograde step serving to harm entrepreneurship without helping the unbanked.

There has been a significant decline in the number of unbanked since the government began reporting on financial inclusion in 2003, from around 4.5 million to 1.23 million. Nonetheless, many of the unbanked exist on the precarious margins of society and in this context politicians’ criticisms of card-only businesses are understandable.

To some, the rise of fintech has only benefited the already well-off, and card-only retail serves to further alienate the poorest in society, who have limited access to credit. However, Cashing Out finds that abolishing card only businesses increases costs and risks borne by small businesses, while doing little to materially help the poor. The unbanked receive worse, and more expensive services and utilities paying by cash. Further, a 2019 paper analysed rates of discrimination in lending and loan approval in new fintechs compared to traditional providers, and found that fintech algorithms discriminate 40% less.

The Access to Cash Review painted a grave picture of the future of cash. Cashing Out finds its argument forceful but inconsistent: a financial future where we are unable to help pensioners use a debit card, yet where commuters can buy train tickets with implants, seems highly unlikely. 

But the Review was right to acknowledge that new electronic payment systems like iZettle or Square have made accepting card payments cheaper than ever before.

Recent polling of the unbanked has revealed striking results. Most of them had had a bank account in the past and had lost it, and many of them claimed that they did not want a bank account. Many of these people live on the margins of society and distrust mainstream financial institutions. Among the newly banked, meanwhile, satisfaction with banks is poor, these people regularly incur penalties, and around 15% of newly-opened accounts are abandoned.

Six in ten of the unbanked are unaware that banks have to offer everyone a basic bank account, irrespective of their credit rating. A new wave of fintech offerings and Open Banking could transform the way we approach financial inclusion and lead to the poorest in society getting the banking services they need. For example, Monzo lets new customers open accounts without a fixed address, allowing them to use a friend’s house or a shelter instead.

Cashing Out calls on regulators to embrace the productivity benefits for SMEs of electronic payments, and take advantage of the opportunities offered by Open Banking and fintech to our economy. 

Fred de Fossard, author of Cashing Out, says:

“The recent growth in electronic payments and financial innovation in the UK should be celebrated. In trying to support the unbanked and those at the fringes of society, the UK government should embrace the opportunities of Open Banking instead of introducing retrograde measures which will harm businesses and consumers, and do little to support those in need.“

Off BEIS

Noted business thinker Peter Drucker came up with the aphorism “if you can't measure it, you can't manage it”, and while it’s been internalised by many of the UK’s most successful business owners, it doesn’t seem to have been picked up by the government. The National Audit Office (NAO) has reviewed 10 business support schemes run out of the Department for Business, Energy and Industrial Strategy (BEIS) and its conclusions aren’t wholly positive.

According to the NAO, the way schemes are designed and evaluated by the Department did not consistently follow the government’s own guidance. Most of the ten schemes they looked at “lacked measurable objectives from the outset or evaluations of their impact to know if they are providing the most value or if they should be discontinued. Without such analysis, the Department cannot know if its business support is providing value for money.”

In its defence, I’ve read very few NAO reports that aren’t critical, and the report states there “are welcome signs that the Department is improving the set-up and management of new schemes.” But it’s only right that the department's funding is spent as efficiently as possible – both for the good of taxpayers, but also entrepreneurs, who should be benefiting from it as much as possible. 

What a relief
Entrepreneurs’ Relief – which enables business owners to pay a lower rate of Capital Gains Tax (10% instead of 20%) on their first £10m when they sell their business – might be scrapped. Sam Dumitiru has written about why doing so would undermine the Enterprise Management Incentive (EMI) and with it the UK’s most ambitious startups and scale-ups. Most commentators and experts have failed to acknowledge this important aspect of the relief. It’s a very big deal. Read his article here, and please share widely if you agree with his analysis.

Peer pressure 
The Enterprise Research Centre has released Building resilience in under-represented entrepreneurs: A European comparative study. The two year, five-city study (London, Frankfurt, Milan, Madrid and Paris) concludes that female and ethnic-minority SME leaders run their businesses differently.

“Female and ethnic-minority leaders are more likely than their counterparts in all five cities to express socially and environmentally-focused objectives for their firms. Ethnic leaders generally seek less external advice, and both ethnic and female leaders are more likely to consult informal sources of advice (such as from friends and family members) than non-ethnic and male leaders.”

The report recommends promoting resilience (especially for underrepresented entrepreneurs), crisis planning (which can encourage entrepreneurs to assess a wider range of risk factors that may not otherwise be on their radar), and strong networks (which can facilitate peer exchange and expert input would help engage those entrepreneurs less experienced in engaging with formal sources of advice).

This last recommendation echoes the findings of our Management Matters report and Mentoring Matters report as part of our Female Founders Forum.

Forever and always
In the latest Conversation with Tyler podcast episode, Reid Hoffman, founder of LinkedIn, shares an idea for a board game he wants to create: “One would be a political economy game of creation of companies, partially because I actually think teaching the skills of entrepreneurship is important for how do we make progress in society, how do we solve the future of middle-class jobs, et cetera."

We are onboard with Hoffman’s thinking. Building on our Future Founders report findings, we are kicking off a report in partnership with the Association of Business Executives (ABE) looking at evidence for interventions for enterprise education for 11-15 year olds. 

In 2018, I looked at enterprise education at universities for the APPG for Entrepreneurship, but a different age group will require completely different policy levers. Also, this report has an international outlook, as it will be launched at the Commonwealth Heads of Government in Kigali. If you’ve got any experience, evidence or case studies of what works, drop Sam Dumitriu an email with your thoughts.

Nima findings
The latest Brain Business Jobs Index is out. (You may remember that we launched the last report with Dr. Nima Sanandaji.) It’s good news for the UK.

The number of employees of the most knowledge-intensive firms has grown from 2.6 million in 2012 to 3.2 million in 2019. Out of the 602,500 new Brain Business Jobs, 46% have been created in ICT, 31% in advanced services, 13% in the tech sector and 9% in creative professions.

Our main strength is in R&D, head offices & management and film/TV/music. In these sectors, we have close to twice the concentration of knowledge workers compared to the European average.

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X-Road Worthy

Happy New Year!

2020 is going to be even bigger and better (this is quite something, given what we achieved last year). 

In case you’re new to us (or need a recap), we work to change policies to support Britain’s entrepreneurs. Whether this is around areas like tax, investment, visas, regulations, or broader issues impacting the ecosystem like the education system, transport or housing, we will continue to be the leading voice for entrepreneurs in the public policy debate.

(To give you a flavour of what’s to come, below Annabel Denham has an update on the All-Party Parliamentary Group for Entrepreneurship and Female Founders Forum, and Sam Dumitiu gives you a taste of some of the research we have planned.)

We don’t think supporting entrepreneurship should be an end in itself; we do this because entrepreneurs are the key driver for innovation, employment and economic growth, which improves the lot of everyone. Entrepreneurs are the lead actors in solving the world’s problems, making everyone wealthier, healthier and happier.

But entrepreneurs don’t do this alone. They need advisers and employees to realise their vision, and they need the right laws and institutions in place. And so, for better or worse, the quality of governments matters. That’s why I’ve written for CapX on why we should be optimistic about ambitions to radically reform the way the government interacts with entrepreneurs.

I take Estonia as a model for what can be achieved. Within a generation it went from having limited internet access to a cutting edge digital state, with people able to securely pay tax (e-Tax), vote (i-Voting), store their health records (e-Health), and even live and run a business remotely (e-Residency). The prize for success is significant: it is estimated that X-Road, the keystone of Estonian digital society, saves business owners around 12 million hours every year.

Update from Annabel
A new Parliament means a reformed APPG for Entrepreneurship, and while Seema Malhotra MP will remain Chair with Dr Lisa Cameron MP as her Vice, we’re busy inviting new faces to join (around a fifth of the new intake are former business owners). We’re excited to announce that Katherine Fletcher MP, Rob Roberts MP, Jerome Mayhew MP, James Daly MP and Saqib Bhatti MP have already agreed to get involved.

The APPG will continue in its mission of informing politicians on what is needed to create the most favourable conditions for entrepreneurship, opening a dialogue between policymakers and business owners.

The Female Founders Forum continues to grow. At the end of the year, I was on Sky News discussing the need for role models for young girls and we will continue to shed a light on all these women have achieved to inspire and encourage more to follow suit. Importantly, we will be taking our events across the country, reaching out to entrepreneurs across the regions. If you’re a female entrepreneur – particularly in the healthtech or agritech spheres – and want to get involved, drop me a line.

Update from Sam
Last year was The Entrepreneurs Network’s biggest year yet for research with notable reports on the massive impact of immigrant entrepreneurs in the UK, the link between management and productivity, the huge strides made by female founders, and the entrepreneurial ambitions of Britain’s young people. 2020 is set to be even bigger.

As we’re planning on being even more productive this year, it is fitting that we’ll be kicking off with research looking at SME productivity, in particular, the link between it and digital adoption. The report will explain how we can turbo-charge SME digital adoption and make the UK a world leader in digital business. Sticking with the theme of productivity, we’ll also be looking at a range of factors that affect it – from business dynamism to the local determinants of productivity. 

Last year, we found that over half (51%) of British young people (aged 14-25) have thought about starting (or already have started) a business, but while entrepreneurial intention is widespread, the know-how to make it a reality isn’t. That’s why we’ll be looking at the way entrepreneurship is taught (if at all) in schools.

We’re also going to be working with a new foundation to cover a range of issues, from how policymakers can harness the power of entrepreneurship to tackle environmental challenges to better tracking the social and economic contribution of SMEs and unlocking more investment for early-stage businesses.

Smarter for ten (or fewer)
Our good friends at the Small Business Charter, in partnership with a consortium of 15 business schools, has been awarded BEIS and Innovate UK funding to support microbusinesses to explore digital and new technologies that could help them grow. The programme offers fully funded opportunities for business owners employing fewer than ten people, and they have asked us to spread the word. Find out more here.

Read the whole newsletter here, and sign up here.

Startup Manifesto: Reform the Investor Visa

Policy 8: Reform the Tier 1 Investor Visa by lowering the minimum qualifying investment threshold for investment in UK startups, scale-ups and venture capital funds

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. We’ll be sharing a policy every day on our blog. To read the full manifesto, click here.

The Tier 1 Investor Visa grants the right to live and work in the UK to any foreign national who makes a qualifying investment of £2m or more in the UK. Until recently, the most common form of investment for Tier 1 Investors was in gilts. However under new rules, investments in government bonds no longer qualify. This follows a change in 2014 that prevented investments in property from qualifying. While the rules have encouraged Tier 1 Investors to invest in share capital, the vast majority are investing in established FTSE 100 companies. 

In order to promote job creation and innovation in the UK, the Tier 1 Investor Visa should be reformed to direct more capital into startups and scale-ups. Governments have developed multiple targeted tax reliefs such as SEIS, EIS, and Venture Capital Trusts to incentivise investment in higher risk, early stage ventures. Due to the substantial tax relief on offer, the schemes are closely monitored and feature a principles-based risk-to-capital test, alongside restrictions on investments from connected persons, such as relatives or employees.

To promote investment into UK startups and scale-ups, the government should relax the minimum qualifying investment threshold for the Tier 1 Investor Visa for any investments into Venture Capital Trusts and businesses that would qualify for either EIS or SEIS tax relief. A higher threshold should be maintained for lower risk investments.

The government should also remove additional barriers to foreign investments in risk capital. The requirement to top up an investment if the value of an investment declines, pushes investors towards low-risk investments. In the case of a struggling startup, this requirement could swiftly become prohibitively expensive.

Roaring Twenties

This week Westminster welcomed 140 new MPs. PoliticsHome has a nice run through of all of them.

There are quite a few former business owners among them, including Theo Clarke, MP for Stafford, who in 2011 set up an arts blog called Russian Art and Culture that evolved into curating exhibitions on contemporary art, which she sold in October 2016. And Stuart Anderson, MP for Wolverhampton South West, who founded eTravelSafety, which uses AI to assess the risk level of destinations around the world. A former soldier, he bounced back from losing his house after the security firm he managed went into administration.

Party like it's...
What a year! We kicked off 2019 with Management Matters, our report looking at practical reforms – including tax breaks for self-funded work-related training – to encourage greater investment in management capability to reduce the rate of unnecessary business failure. It was launched in the Lords by small business minister Kelly Tolhurst MP and supported by the Association of Business Executives (ABE), who we will be undertaking another project with in the new year.

February saw our Female Founders Forum project host a roundtable in Bristol. We also hosted our second film premiere (the first being The Founder in 2018), On the Basis of Sex, for our large and growing group of female founders. Now entering its fourth year, we will once again be partnering with Barclays to support female founders up and down the country. Watch this space (or, better yet, sign up to Annabel's email to be kept updated).

In April we helped launch a piece of research at an event with the National Centre for Entrepreneurship in Education (NCEE) with the APPG for Entrepreneurship and Baroness Wolf. This is a format we would like the APPG to emulate. As such, just let us know if you're releasing any relevant research you think would be interesting to MPs and Peers and we will help coordinate the APPG to launch it. We also hosted a roundtable with competition supremo John Fingleton on how healthtech regulation can be reformed to support innovation in the sector.

Summer saw us release our Job Creators report, which was kindly supported by the inspirational entrepreneur Sukhpal Singh Ahluwalia. Sukhpal arrived in the UK in 1972 as a refugee, fleeing the regime of Idi Amin in Uganda, but went on to found Euro Car Parts, employing more than 12,000 people. The report found that 49% of the UK’s fastest-growing startups have at least one immigrant co-founder. As with all our reports it received extensive press coverage, and has help to change the public debate on immigration.

During those warm(ish) months we also: hosted a Business Stay-Up roundtable with Gillian Keegan MP; partnered on the Festival of Technology and Innovation in Manchester; hosted a Female Founders Forum roundtable in Edinburgh; delved into reforms to support more flexible rail fares with Baroness Kramer and the Rail Delivery Group; got into the challenges of raising finance at Berenberg; as well as the challenges of running a high growth business in your twenties at the London Stock Exchange with Ivory Capital Group; considered how to support the next generation of entrepreneurs at Octopus Group; and helped launch Professor Mark Hart's Global Entrepreneurship Monitor UK Report with NatWest at its Accelerator. Phew!

In August we launched Future Founders, which found that over half of British young people have thought about starting (or already have started) a business – and much more besides. It was undertaken in partnership with Octopus Group, who we've been working with for a long time. In fact, they were our founding sponsor when we launched all the way back in 2014.

We also hosted Dr Nima Sanandaji to discuss his Brain Business Jobs research – that is, jobs that are crucial for income and productivity growth – and ran our first Kingsley Napley immigration roundtable (the next one is in January).

In September we were at the party conferences at Barclays Eagle Labs, hosting events with Seema Malhotra MP, Rupa Huq MP, Catherine West MP, Gillian Keegan MP, and Dr Caroline Johnson MP. BDB Pitmans also hosted a roundtable with the Freeports Advisory Panel to delve into whether this policy can support Britain's entrepreneurs.

October saw the launch of Here and Now the latest research as part of our Female Founders Forum project. Using Beauhurst data, it revealed that the share of funding to women-led firms has doubled in less than a decade, while follow-on funding data reveals that women are just as bankable an investment as male-only firms once they have received funding. 

The Office Group also also hosted a book launch on the Secrets of Sand Hill Road with its author Scott Kupor, managing partner at Andreessen Horowitz. We were also in Parliament with Dr Lisa Cameron MP for a roundtable on mental health and entrepreneurship, which was supported by our Adviser Guy Tolhurst, and hosted a private dinner for some of our Advisers with Chuka Umunna and Ed Davey MP. We are planning a lot more private dinners with Ministers, Shadow Ministers and noted MPs in 2020 – including as part of The Leap project, which we work on with Mishcon de Reya. Just drop me a message if you would be keen to find out more about how these work.

Last month we ran an event during Global Entrepreneurship Week at Drummonds on the next generation of entrepreneurs. We also hosted another roundtable on visa reform at Kingsley Napley with the founders of some high-growth businesses from our Job Founders report.

We partnered with some great small business organisations for our 2019 General Election Small Business Debate with front bench politicians, including Lis Truss MP and launched our Startup Manifesto with Coadec. The Manifesto features 21 policies across access to talent, access to investment, and regulation, and was backed by over 250 entrepreneurs in our network. Thanks to everyone who supported it! We are raising these and our other policy ideas with the new Government (in fact, I was in No 11 today doing exactly this).

2020
Next year will be even bigger and better!

Given what we do is free for most, I'm often asked how to help. Of course, getting support like Sukhpal, or Chris Hulatt, Simon Rogerson (and originally Guy Myles) from Octopus has been invaluable. And we wouldn't be here without all our corporate partnerships and those who support us both financially and with their time as Advisers and Supporters. 

However, we appreciate this isn't for everyone. As such, if you believe in our mission it would be great if you could simply let other people know about the work we do. We have built a network of thousands of entrepreneurs and people who support them through word of mouth. If you know someone who you think should get involved, forward this email, direct them to our website, or suggest they sign up to this newsletter.

I'll update you with more of our plans in January. Until then, Merry Christmas and a Happy New Year! See you in the Roaring Twenties.

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Replication Crisis, Explaining Extremists & Land Banking

Does science self-correct?
Matt Clancy, New Ideas Under the Sun
Suggested by Sam Dumitriu, research director of The Entrepreneurs Network

There is a replication crisis in the social sciences. Many findings in social science simply can’t be reproduced by other researchers. Scientist Brian Nosek got 270 of his peers to attempt 100 psychological studies published in top journals. While 97% of the original studies produced statistically significant results, just 36% of the replications did. This is a major challenge to many lines of enquiry in social science.

But how do scientists respond when entire fields are called into question? Innovation economist Matt Clancy tries to answer this question by looking at what happens when papers are retracted. The findings are broadly heartening: “scientists are pretty responsive to news that research is flawed. They rapidly stop citing retracted work and they look more skeptically at work by the same people, especially when they have less reason to trust the author (either because they didn’t self-report or they have a less prestigious track record). They even exercise more caution in citing work in similar fields.”

I wonder if the real issue is not how scientists retract, but whether news of a retraction or failure to replicate makes it to the media. Take Paul Dolan’s now retracted claim that married women are, on average, “f***ing miserable” based on a misreading of the data. Prominent magazines were still publishing op-eds uncritically citing his claim a week after it had been retracted.

Explain your extremists
Bryan Caplan, Econlib
Suggested by Philip Salter, founder of The Entrepreneurs Network

If you held the opinions of an average person in any village, town, city or country at any point in history, you would have happily thought things that seem to us morally indefensible. Just consider slavery, segregation and human sacrifice. 

And yet, it would be surprising if we just happened to be born at the historical apex of moral enlightenment. Surely there are things that we do today that will be looked upon by future generations as abhorrent. Some people do question the status quo. Historically, these people were considered extremists.

In a recent post, Bryan Caplan asks readers to account for current extremists. Perhaps, for example, their proposals are politically impossible, unstable or costly. (And, if you’re the extremist, maybe you’re not being pragmatic.) Either way, what makes you think you’ve discovered your side’s Golden Mean?

Caplan himself has plenty of extreme views; including that America – or any country for that matter – should have completely open borders.

Land banking is a myth
Barney Stringer, Barney's Blog
Suggested by Philip Salter, founder of The Entrepreneurs Network

Land banking is the practice of buying undeveloped land purely as an investment, with no plans for its development. For years, commentators from across the political spectrum have blamed the practice for reducing supply and pushing up house prices.

It was a claim without evidence, which has been proven false by Barney Stringer and his team. Looking at 604 sites across London with planning permission for 175,963 homes, they uncovered why sites weren’t progressing.

Above all, they found that the complexity of planning and development is delaying delivery of housing. Reserved matters (additional planning details that are required), delays to infrastructure like Crossrail, time taken to get a Compulsory Purchase Order, and waiting for current businesses to vacate are all slowing down developers.

Given that councils are expected to find an additional 260,000 homes in the next five years and this study only identified current planning permissions for 176,000 homes, one thing isn’t a myth: we aren’t building enough to keep up with demand.

Check out the work of London YIMBY if you’re interested in finding out more about this issue.

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Startup Manifesto: Utilise private coding schools as lifelong learning providers

Policy 7: Utilise private coding schools as lifelong learning providers

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. Over December, we’ll be sharing one policy every day. To read the full manifesto, click here.

It’s no secret that there is a real digital skills shortage here in the UK. Tech companies are starting to feel the squeeze already with one study suggesting the country is losing out on £63bn a year because companies are struggling to find people with adequate digital skills. 

Better education helped power economic growth in the 19th and 20th centuries, and efforts to modernise the national curriculum to include coding – as well as through digital T-Levels – have been extremely welcome. But addressing the digital literacy and employability of 5-18 year olds is only one facet to ensuring an adequate talent pipeline. 

Private coding schools are a widely untapped resource that have a proven track record of turning novices into fully qualified coders in just 12 weeks. We should leverage their success by putting them on a more formal footing with the current education system. Allowing coding schools, and their prospective students, to tap into government funding would ensure that it’s not just those in traditional education that have access to digital skills training opportunities. 

Taken alongside the National Retraining Scheme, private coding schools can play a crucial role in ensuring that the labour market evolves alongside the skills demand. The next government should explore ways of harnessing the success of our coding schools, as they can provide invaluable mid-career education and help to upskill and reskill sections of the workforce within a short time frame. This will ensure the current and future workforce have the necessary skills.

Startup Manifesto: Support more women to start and scale businesses

Policy 6: Support more women to start and scale businesses

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. Over December, we’ll be sharing one policy every day. To read the full manifesto, click here.

Women have made great strides in entrepreneurship this past decade. In 2011, 11% of startups that raised equity investment for the first time were female founded. By 2018, the figure had almost doubled to 21%. Once funded, women-led businesses are just as likely to secure second and third rounds of financing. 

Barriers to participation and growth persist, however. Just one in five business owners is female and women-led firms are underrepresented in those sectors most likely to scale (e.g. tech and IP-based businesses). Studies suggest they are held back by three factors: access to finance, risk aversion, and access to networks.

We offer three recommendations to ensure more women start and scale businesses. First, we need to tackle STEM drop-off rates by gathering more data, consulting with schools and universities to examine the role of socialisation in the disparity, and examining how careers guidance could inform and tackle gender stereotypes. 

Second, we should ensure the Minister for Women and Equalities has female entrepreneurship in their remit, and encourage MPs and Ministers to open the doors to Number 10 and the House of Commons to formally validate and celebrate female entrepreneurs’ efforts.

Finally, a lack of networking opportunities remains a persistent barrier to female founders. By providing networks – through LEPs, for instance – and encouraging more female employees and founders to get into schools and universities, we can shine a spotlight on role models and inspire the next generation.

If women set up businesses at the same rate as men, we’d have 1.1m more in this country. If they can scale them at the same rate too, we could add nearly £250bn to the UK economy.

Bolt from the Blue

The people have spoken. Yesterday's election was the largest Conservative majority since Thatcher’s 1987 landslide and the largest majority overall since Blair’s landslide in 2001. The Conservative Party now has what is being described by many as a 'stonking' or 'thumping' mandate with a majority of 80.

In case you're in any doubt, this majority means the Withdrawal Agreement Bill will pass through the House of Commons before the Christmas recess and we'll leave the EU at the end of January.

After this, there are three paths forward for the full exit on 1st January 2021: A hard "WTO" rules Brexit; a "Canada-minus" deal; and an "extend and pretend". Experts disagree on what will happen. Economist Jonathan Portes has a bet with Ivan Rogers, the former Permanent Representative of the United Kingdom to the European Union, that Boris will opt for the latter.

Labour the point

Yesterday felt decisive, but as Tom Clark writes in Prospect on six reasons why the Left need not despair: "On a day like this, I realise all these arguments for hope on the Left and Centre may sound naïve at best or deluded at worst. But recall how all-conquering Thatcher was when she won a slightly bigger majority in 1987; she was gone in a little over three years. Labour was said to have blown its last ever chance in April 1992, and yet within the year the victorious John Major was ruined. And as recently as 2015, the David Cameron/George Osborne duo was said to have locked-in a new majority for modern Conservatism, and yet a year later both were crushed by the Brexit vote. Progressive Britain has been routed by nostalgia this week, but nostalgia will not provide a recipe for navigating the future forever."

Even blue rinse dyed-in-the-wool Conservatives must see the value of having an effective opposition to hold the new Government to account. And there's no inherent reason it couldn't back Britain's entrepreneurs. As archcritic of Corbynomics Dr Kristian Niemietz wrote a few years ago: "You can easily combine support for high levels of income and wealth redistribution with support for a laissez-faire economic policy. You can take the view that the state should redistribute wealth, but it should not get too involved in its creation. Related to that, you can take the view that the state should fund a generous welfare state, but that it should not itself be the main provider of welfare services."

What next?

We'll continue to act as a bridge between entrepreneurs and politicians and policy makers across the political spectrum, inviting some of the new MPs to join as Officers and Members of the All-Party Parliamentary Group for Entrepreneurship. And we'll continue to make that case to government and opposition alike that our vision of a more entrepreneurial society is a noble one.

Of Korski

Entrepreneur and former special adviser to David Cameron has a Twitter thread on how to make UK public services fit for the 21st century. Following the Science Committee's criticism of the slowdown in digitising government services, Korski calls for a Department of Technology and Innovation led by a world class venture capitalist or globally-known entrepreneur; the merging of the Government Digital Service with parts of the Cabinet Office like the Crown Commercial Service to create a Government Transformation Agency reporting to the Prime Minister; a replacement of G Cloud for procurement; and much more besides.

Korski is spot on. A govtech revolution is one of our asks in our recently published Startup Manifesto, and an issue that we will do more work on next year.

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Failure, Coffee Houses and Old Boys' Clubs

Why Entrepreneurs Don’t Learn From Their Mistakes

Francis Greene, Wall Street Journal

Suggested by Philip Salter, founder of The Entrepreneurs Network

'Fail fast, fail often' has been the disputed mantra of a few tech entrepreneurs and their orbiters for a while now. And there is some sense to it. Trial and error, experimenting and iterating, can evolve an unprofitable idea into something with a market. And, more broadly, there are many anecdotes of entrepreneurs succeeding from the ashes of failure.

But we shouldn't romanticise failure. In fact, as Francis Greene's research shows, many entrepreneurs don’t learn from their mistakes. "In fact, it’s the opposite: Fail once and you’re most likely to fail again. Believing in the myth only sets entrepreneurs up for more failure – and leads to disappointment and frustration."

Greene looked at 8,400 German startups to see if the new companies launched by failed entrepreneurs did any better than first-timers. They didn’t, having poorer outcomes the second time around.

For Greene, the shifting complexities of running a business mean that the lessons of failure aren’t gainable or even applicable to future endeavours. If his work replicates, it should be taken seriously by individuals and policy makers.

If at first you don't succeed? Perhaps you should try your hand at something else.

The Lost World of the London Coffeehouse

Dr Matthew Green, The Public Domain Review

Suggested by Sam Dumitriu, research director of The Entrepreneurs Network

Why did the Industrial Revolution start in 18th century Britain, and not at any other time or place? It’s an interesting question and an important one too. In fact, given that the Industrial Revolution was responsible for an increase in real income per head by anywhere 2,500 and 5,000 per cent, it’s probably the most important question out there.

Most of the explanations don’t stack up. To quote Deirdre McCloskey “the modern world was made not by material causes, such as coal or thrift or capital or exports or exploitation or imperialism or good property rights or even good science, all of which have been widespread in other cultures and other times.” The economic historians I find compelling credit ideas: ‘an improving mentality’, ‘trade-tested betterment’, and the enlightenment.

If ideas matter for economic growth, then we should pay attention (and tribute) to the institutions that enabled them to spread. London’s coffeehouses may seem rather sterile today, but in the 17th and 18th century they were rowdy places. As Dr Matthew Green writes “early coffeehouses all followed the same blueprint, maximising the interaction between customers and forging a creative, convivial environment. They emerged as smoky candlelit forums for commercial transactions, spirited debate, and the exchange of information, ideas, and lies.” Green’s short history shows how the debates in London’s coffeehouses helped shape the modern world.

Of course, there’s an alternate explanation for coffeehouses' role in the modern world. “Until the mid-seventeenth century, most people in England were either slightly — or very — drunk all of the time. The arrival of coffee ... triggered a dawn of sobriety that laid the foundations for truly spectacular economic growth in the decades that followed as people thought clearly for the first time.”

The Old Boys’ Club

Zoe Cullen & Ricardo Perez-Truglia

Suggested by Annabel Denham, associate director of The Entrepreneurs Network

We are closer than ever to gender equality in the workplace yet still so far. Progress is agonisingly slow despite the opportunity cost for companies and the wider economy. Nowhere is this more stark than the investment sphere. Female entrepreneurs receive a small piece of the funding pie and many complain of an “old boys’ club,” where male investors network with and ultimately invest in innovators who are themselves well-connected men.

A new study from Harvard University reinforces the alleged advantage that male employees have over their female counterparts in schmoozing with powerful men within the workplace. The authors find that when male employees are assigned to male managers, they are “promoted faster in the following years than they would have been if they were assigned to female managers. Female employees, on the contrary, have the same career progression regardless of the manager’s gender.” As with venture capital, this mechanism creates a self-perpetuating cycle.

Further, “when male employees who smoke switch to male managers who smoke, they spend more of their breaks with their managers and are promoted faster in the following years. Moreover, the effects of these smoking manager switches are similar in timing and magnitude to the effects of the gender manager switches.”

The research has implications for policies aimed at narrowing the gender gaps in leadership or pay. Companies could change their promotion review systems, the researchers suggest. They could level the opportunities for employees to socialise and connect with their managers. Success isn’t guaranteed, but it certainly sounds simpler, and less archaic than suggesting women take up golf – or cigarettes – to be closer to the nexus of power.

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Startup Manifesto: Extend the Tier 5 Youth Mobility Scheme visa to European citizens

Policy 4: Extend the Tier 5 Youth Mobility Scheme visa to European citizens

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. Over December, we’ll be sharing one policy every day. To read the full manifesto, click here.

Tier 5 is a successful suite of visas that support youth mobility. The Tier 5 Youth Mobility Scheme visa currently allows those aged 18 to 30 from specific countries to live and work in the UK for up to 2 years, which includes the freedom for them to start their own business. This should be extended to citizens of EU countries and it should also be considered in future trade deals, if we leave the European Union.

The Tier 5 visas allow young people to get experience of the job market, but migrants’ connections can also benefit UK businesses to scale up by helping support expansion and growth into new markets; strengthening client relationships in existing markets abroad by being able to use their language and cultural awareness; and helping with business activities using local connections within the UK.

Migrants are able to bring to the workplace culturally unique and complementary skills, as well as knowledge of processes and ideas. They have been known to innovate, up-skill colleagues, improve processes and secure new work.

If there isn’t the political appetite to extend this scheme to the whole of the EU, the UK could discriminate, picking countries where there is a perceived special relationship, while allowing citizens of other EU countries to use the Tier 5 Temporary Worker – Government Authorised Exchange visa. The number of visas allocated to each scheme would need to be significantly increased.

In addition, to make the visa system easier for migrants, all Tier 5 visa holders should be able to switch from Tier 5 to Tier 2 (assuming they find a sponsor) as well as other visa routes without the added unnecessary bureaucracy of having to leave the country and apply from their home country.

Startup Manifesto: Reduce the Tier 2 Visa Salary threshold and allow stock options to be considered in visa applications

Policy 3: Reduce the Tier 2 Visa Salary threshold and allow stock options to be considered in visa applications

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. Over December, we’ll be sharing one policy every day. To read the full manifesto, click here.

The current salary requirement of £30,000 for Tier 2 Visas has proved difficult for startups to meet because many people are paid less in the early stages of a company. ONS data shows that 46.1% of people employed in technical jobs receive a salary of less than £30,000, which makes it difficult for startups to hire at junior and mid-level positions, as those salaries fall below the threshold. These positions cannot be filled easily via the Tier 1 Exceptional Talent Visa either, which leaves a hiring gap for many companies. 

It would be preferable for the salary threshold to be lowered to around £21,000, which 25.3% of employees in technical jobs and 39.2% of all people in full-time employment earn less than.

Stock options form an important part of the compensation packages offered by startups, as equity is often offered to key hires in lieu of a higher salary, in order to moderate operational costs at the beginning of a startup’s lifecycle. There is no reason why their value should not be taken into account for the salary thresholds in visa applications, especially since they are already used for other reporting criteria such as gender pay gap reporting. It would be reasonable to expect the equity to be written into the employment contract and worth under 30% of the total compensation package. 

Startups are able to compete against big tech companies for domestic top-tier talent by offering equity in lieu of a higher salary. They should be given the same level-playing field when seeking to hire from abroad.

Startup Manifesto: Reintroduce the Tier 1 General visa – or an equivalent

Policy 2: Reintroduce the Tier 1 General visa – or an equivalent

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. Over December, we’ll be sharing one policy every day. To read the full manifesto, click here.

If and when we leave the European Union, ending free movement will deprive startups of a vital source of high-skilled labour. This makes reforms of other visa categories even more necessary. 

The Government has called for the introduction of a points based system, but it’s rarely acknowledged that the current system is the remnants of one. In 2015, the government stopped accepting applications for the Tier 1 (General) visa, which had been introduced in 2008 to replace the Highly Skilled Migrant Program (HSMP).

The Tier 1 (General) visa allowed highly skilled migrants from around the world to come to the UK to live and work for any employer, including working for themselves, with the initial visa lasting for two years. This meant that the best and the brightest could to the UK with the freedom for the individual of not being tied to a specific employer, while early-stage businesses could employ them without the costs and bureaucracy of needing to go through a sponsorship route.

If we are to compete internationally, the next government should bring back the Tier 1 (General) visa, or create a similar path. 

Startup Manifesto: Ensure that the Start Up and Innovator Visas are implemented successfully

Policy 1: Ensure that the Start Up and Innovator Visas are implemented successfully

In collaboration with The Coalition for a Digital Economy (Coadec), we have produced a manifesto to make Britain the best place in the world to start and grow a business. It features 21 policies across three key policy areas: access to talent, access to investment, and regulation. Over December, we’ll be sharing one policy every day. To read the full manifesto, click here.

International talent is the driving force behind the UK’s startup success story. While just 14% of UK residents are foreign-born, 49% of the UK’s 100 fastest-growing startups and 11 out of the UK’s 16 startup unicorns (pre-IPO startups with a valuation of over $1bn) have at least one foreign-born co-founder. There is an overwhelming economic case for keeping the UK open to international entrepreneurial talent.

The Tier 1 Entrepreneur and Graduate Entrepreneur visas were bureaucratic, badly promoted, and not fit for purpose. The government was right to replace them with the new Innovator and Start Up visas giving incubators, accelerators, and venture capital firms a key role as external endorsing bodies. However, serious flaws in the implementation of the Innovator and Start Up visas risk making it even harder for foreign entrepreneurs to create jobs in the UK.

At the time the previous Tier 1 Entrepreneur visa route was closed, there were no endorsing bodies ready to accept applications, and only one of the 30 initial endorsing bodies had any information about the visa on their website. This created a situation where the UK was, briefly, the only major developed economy without an entrepreneur visa route. In the first quarter since the Innovator visa route opened just two applications were successful. At least four of the initial 30 endorsing bodies have already dropped out.

There are two major flaws in the implementation of the Innovator and Start Up visas. First, the requirement for endorsing bodies to receive approval from two different government departments has delayed endorsing bodies from being able to accept applications. This additional requirement was announced after the scheme had been live for 2 months and without any pre-warning, after a number of bodies had already submitted applications to become endorsers. Second, endorsing bodies are unable to charge immigration fees, despite the fact that in order to endorse an applicant, the endorsing body must input several hours of work in assessing the business plan, alongside other costs. 

If endorsing bodies are unable to charge fees, they will only have a financial motivation to endorse an applicant if they are taking loan or share capital in the new business. In practice, entrepreneurs who have their own capital, or capital from organisations other than the small pool of pre-approved endorsing bodies and don’t want to give up additional equity will find it difficult to enter using this route.

Alongside resolving the issues mentioned, the Home Office should also collaborate more with Local Enterprise Partnerships, cities, and business groups to ensure that sponsoring organisations have a wider geographic and industry spread so they better represent the UK’s entrepreneurial ecosystem.