What should the government be doing to help SMEs?

From taxation to red tape to start-up competitions, company owner Tim Pat Dufficy discusses the factors that impact on small businesses in the UK and how the small business sector can be boosted.

One of the promises that the coalition made at the 2010 election was to ‘cut the red tape’ that hampered UK businesses and inadvertently restricted growth. For example, the Cabinet office has its own web page specifically designed to open a debate between various industries on how to clamp down on obstructive regulations. So, the steps the government is taking are having a positive impact on small to medium-sized enterprise (SMEs), but it’s been a very gradual process. There’s a lot more that needs doing.

Taxation is not the answer

This week, Lord Wolfson, the chief executive of retail giant Next and a Conservative peer, said that the proposed online sales tax, designed to create a ‘level playing field’ for bricks and mortar retailers, could destroy digital start-ups. The tax is being toyed with as an antidote to the increasing business rates and may help to fund a freeze or reduction in the rates.

This is a significant problem the government faces. It desperately needs funding, without having to resort to more extensive public sector cuts, and it’s worryingly looking at the SMEs as a source of this funding.

The reality is that the proposed online sales tax is not sure to help to reduce the soaring business rates that continue to restrict SMEs. If it doesn’t then SMEs will face a ‘double tax’, and any sort of online tax will have a damning impact on sustained growth, as most businesses now have a strong and well-established online presence when it comes to the sales of their goods and services.

It’s a difficult situation that the government finds itself in, because SMEs are showing the most promise when it comes to fuelling an economic comeback in the UK and it wants to ensure that it doesn’t lose out when these companies start flourishing. Taxation is not the solution though.

The government needs to take a step back and let these SMEs grow without issuing crushing tax restrictions, as these are the businesses that will lift the UK out of the economic downturn and instigate continual positive output.

The importance of funding to SMEs

Funding is vitally important though. Investing in start-ups will ensure that there is a next generation of entrepreneurs and business owners, to enhance sustained growth when the UK economy starts to pick up again. The government doesn’t need to siphon off money from the public purse; it just needs to persuade foreign businesses, and indeed domestic investors, that the UK is open for business.

The ‘Olympics effect’ is said to have generated £9.9 billion worth of investment and trade for the UK, according to the government, but whether this figure is accurate or not – it shouldn’t be something the government sits back on.

The Olympics, from an economic perspective, was only a catalyst for prospective economic growth and the government should be looking to build upon this initial surge in investment, by looking to persuade investors that the UK’s SMEs, which let’s not forget make up 99.9 per cent of the UK’s private sector businesses, are worth investing in.

Investing in incubator projects for start-ups

Projects or start-up competitions can provide an excellent environment for encouraging investment. One such competition, the ‘Million Pound Start-up’ competition, which has been rolled out around the world, has been introduced to London with the aim of bringing a high-growth technology company to the City with a £1 million investment.

The competition has generated a considerable amount of funding from other businesses in London keen to promote growth and interest in the capital’s surging start-up community.

The government should be looking at these schemes and working with the businesses that contribute funding to help attract promising businesses to the UK. There has been much talk recently about whether London will ever produce a billion dollar technology company, but projects such as the Million Pound Start-up competition are helping this become a reality and act as much-needed incubators for budding start-ups.

Related: Embracing the UK’s accelerator and incubator programmes

When it comes to helping SMEs, the government should look to cut the red tape that still seems to be restricting long-term growth. This includes taxes and regulations, such as the high business rates and proposed online sales tax, which have a very negative impact on business growth.

Funding is also vitally important to SMEs and start-ups. The government doesn’t have to necessarily provide investment from taxpayers’ money, but it should look to act as a consultant for foreign and domestic investors that are thinking about investing in SMEs in the UK.

A balance needs to be struck when it comes to the government helping SMEs. The restrictive regulations have to be cut, but at the same time investment in grassroots businesses should be high on the government’s agenda.

Further reading on tax


Tim Pat Dufficy

Tim was managing director of ServerSpace Limited, which was successfully sold to to the Iomart Group in 2014.

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