It is repeatedly said by politicians that small businesses are the backbone of our society. It is not the large conglomerates or the multinational giants, but the thousands of businesses that employ either a sole trader or a handful of staff that are legion and massively contribute to the economy.
For a government, even a small, ailing commercial venture is better than paying out benefits to someone who seeks self-employment, so what’s not to like about small business? Well despite all of that economic advantage, the world of the small business is a very tough one indeed. Many aspiring entrepreneurs revert back to employment because of the sheer difficulty in establishing cash flows, customer bases and prevailing over the competition. The law of employment offers a regular wage, conditions, paid leave and usually, an established market space wherein one can get on with the day job rather than having to self-market while at the same time providing goods and services.
Many small businesses get by on relatively modest salaries for the directors, with dividend payments that take advantage of the tax system in order to make ends meet. Former Chancellor George Osbourne imposed 7.5 per cent tax on these dividends, making the life of the very small business more difficult indeed. This, and Philip Hammond’s controversial suggestion that the national insurance rates should rise for the self-employed belie an understanding of the reality of that status for so many.
Few policies are small business friendly
Indeed, despite the soundbites, there are few policies that are small business friendly. For many years, I’ve held the hope that we may eventually get a government that, the rhetoric aside, actually ‘gets’ small business and the very real difficulties faced by those who trade in this way. Any new government that takes power after June 8th needs to make this a priority.
Prior to the election trail, Jeremy Corbyn suggested levelling the playing field for sickness and other benefits for small business. That makes a lot of sense, and would be a worthy manifesto pledge to take forward. Most small operations face the stark reality that if you are a single trader or rely on just a handful of people, sickness, maternity leave, late payments by larger corporate entities or a poor accountant can easily drag you under or leave its owners working for little or no income periodically. If you’re a woman running a small business, and trying to balance having a family alongside the entrepreneurial oomph that is needed to sustain a small business is a huge challenge indeed, despite the resounding rhetoric from all political colours of supporting more female entrepreneurs.
Add this to the competition small businesses face from their larger competitors who have economies of scale, more resources and reserves, and many hands to lighten the load, and the lot of a small business is a really demanding one indeed. These leaders need to be reassured that those at the top of the political tree have their best interests at heart, as well as those of the corporate elite.
Many small businesses are run on a lifestyle basis, that is, their progenitors seek to express themselves in society in ways unique to them and their way of creating economic activity is just another manifestation of this. It would be foolish of the incoming government to see such businesses as other than mainstream. Whatever motivates a person in business, as always typically idiosyncratic, whether that’s to work from home while bringing up children or to acquire billions in the bank. All business motivations can be viewed with one particular lens as neurotic, quirky or some other term of detraction. The simple fact is that, in lifestyle businesses, you find people entrepreneurial enough to contribute to society in an active way that balances their values with other important things in their lives. Far better that than being subjugated to state handouts and the vagaries of the benefit system in which some must inevitably dwell, some choose to dwell and whatever, produces a significant bill to the taxpayer.
Getting behind small businesses
So maybe it’s time for this government taking office in June, particularly whoever takes the roles of Chancellor and business secretary to truly get behind small businesses. I know one impediment to this is the sheer tax take by government of large employers produces approximately £150+ billion per year compared to the relatively modest sums of corporation tax that are around £45 billion. However, if we view the social value of small business as simply tax generation potential, then every government will be the champion of big business. Rather than being a thriving, modern force within our economy, small business will be relegated, as it currently is, to something akin to limpet grasping to a rock, unnoticed because the politicians can only see the big fish that are increasingly offshore.
I hereby call out a challenge to all politicians campaigning for our votes over the coming weeks: you need to truly ‘get’ small business and be prepared to evidence this in more than soundbites, through a proactive policy framework. Time to show yourselves!
David Cliff is managing director of Gedanken.
Further reading on politics and small businesses
Nominations are now open for the British Small Business Awards, the leading event celebrating the brightest stars in the SME sector. Click here to enter, and make sure you get involved today using the hashtag #BSBAwards. Good luck!