by Toby Perkins
Entrepreneurs are central to the vision of One Nation Labour.
In his first ever conference speech as leader in 2010, Ed Miliband expressed his determination to; “make Labour the party of enterprise and small business” and he has energetically pursued this goal ever since.
In 2011, Labour became the first party to set up an entrepreneurs’ network – NG: Next Generation – to showcase the best of British talent and help aspiring business people hear from some of our most inspirational business leaders.
In 2012 Labour launched a scheme to encourage more people with a small business background to stand for Labour at election time. This has now borne fruit with entrepreneurs standing for Labour in key marginals such as Reading, Oldham and Stafford.
In 2013 Labour’s Small Business Taskforce, comprised of successful entrepreneurs, business representatives and academics produced their list of final recommendations to the party.
The next Labour government is determined not to sit on the sidelines but to take an active role on the side of entrepreneurs and create an environment where small firms can survive and thrive. To achieve this we have a clear plan to support entrepreneurs in the big challenges they face.
An area where a Labour government would make a real difference is in access to finance. Entrepreneurs who want to start out, or to grow their small business consistently tell me that their biggest barrier is the reluctance of banks to lend.
Bank of England analysis show that lending fell yet again last year, meaning overall business lending is still a third lower than it was before the crash.
The Commons Public Accounts committee has criticised the government for failing to address this despite a plethora of schemes, of which Funding for Lending is just the latest.
Rather than continuing to tinker around the edges of this problem, Labour’s solution is truly transformative. Around 90% of the UK’s five million small businesses are locked into just five big banks, who lend on roughly the same criteria. It’s not uncommon to hear about entrepreneurs rejected by each of these in turn.
By contrast, our prime European competitor, Germany, actually increased lending during the global downturn.
They achieved this because of the existence of Sparkassen. These are commercial banks, but they are also established with state backing. They return a profit to shareholders but are confined to a specified region and have a legal responsibility to promote local economic growth. Their branches are run by bank managers with the real autonomy to lend to businesses in the local economies they are intimately attuned to.
The UK should not simply try to create an exact replica of the Sparkassen, but Labour is committed bringing its principles to life in a British context with a new generation of local banks.
Outside of banking, new start ups are also held back from receiving finance by late-payments from the larger organisations they supply to. Labour’s shadow business secretary has highlighted that it is “totally outrageous” that large organisations are forcing small businesses to bank roll them.
The last Labour government created an interest rate penalty for large firms who delayed payment to their small suppliers. The next Labour government will further tackle this issue and ensure government sets the best example, by making it mandatory for all government bodies to publish their record on this.
The cost-of-living crisis has also spread to entrepreneurs and Labour is determined to address this. The £1,500 rise in business rates since 2010 has hurt entrepeneurs. Labour would not bring forward the planned one per cent Corporation Tax cut for 80,000 large firms and use the money to instead cut the business rate bills of 1.5 million small firms.
Likewise, when one in every seven pounds of GDP is spent by the state, Labour understands that procurement is the biggest lever we can pull to help entrepreneurs branch out into new markets. Unfortunately, the current Whitehall machinery is not set up to understand and respond to the need of British small businesses.
Currently, none of the fifteen civil servants reporting directly to the BIS permanent secretary is responsible for small businesses and the amount of procurement spend which goes to small businesses is not precisely monitored.
By contrast, the head of the US Small Business Administration – a team at the heart of the US government that promotes the interests of small businesses across government – reports directly to the President and 45% of US Federal procurement spend goes to US small businesses.
To catch up with our competitors and to ensure that the next Labour government is the best customer it can be we will establish our own Small Business Administration at the heart of government, something organisations like the Federation of Small Businesses have long campaigned for.
All these measures support those who have already started out, but it is also a crucial task for government to create an environment where an entrepreneurial career path is accessible and normal. Previous efforts to improve social mobility have perhaps overly focused on the professions, when entrepreneurialism can also be a great path to prosperity.
This is why Labour’s Waltham Forest Council is pioneering a scheme which places an entrepreneur or business owner on the board of governors at each local school to ensure that pupils are exposed to this exciting career path early in life.
Similarly, Labour’s plans to give parents of primary school children guaranteed access to childcare from 8am-6pm is partially aimed to allow people from all backgrounds to find the space to pursue entrepreneurial projects.
As innovators and challengers of tired orthodoxies I see entrepreneurs as Labour’s natural allies. I hope this suite of active policies, designed to support them at every stage of their development, will demonstrate that Labour is fulfilling Ed Miliband’s vision to become the party of enterprise and small business.
Toby Perkins MP is shadow small business minister
Tags: entrepreneurs, Small Business Administration, small businesses, Sparkassen, Toby Perkins
An interesting article. Unfortunately I must have missed all of those Labour initiatives, and according to business leaders who gathered in Davos recently Labour’s and Milibands policies on business would be the death of any UK recovery. Like of of Labours policies there is a sting in the tail such as free childcare places. Who pays ? I guess its us, those who work for a living that will have to foot the bill.
The article is also interesting in that you are my local MP, so I can see if you are doing what you preach. As you know we have had big plans for business and commercial redevelopment for many years such as Waterside, A61 corridor, Goytside, Northern Gateway, Markham Vale etc etc.
Only Markham Valve has progressed, and I use the word progressed advisedly. When opened 6 years ago there was supposed to be 5000 jobs created, but still only a couple of hundered have been created and this included businesses that have relocated from within the town. Alas it fell to the Conservative government to give it Enterprise status, so that we may now see clearer progress.
And meanwhile in the real world Toby entrepreneurs want to “get on and do it!”
Its fine to suggest transformative policy, provide comparisons with others and criticise current governments and the shortcomings of previous administrations but can you clearly define…
A. What you are going to do
B. How this will be benefit
C. What will be the measure of succes?
I have never before seen a headline that states “Only Labour has the policies that Britain’s entrepreneurs need” so please enlighten us all.
It is a time tested fact that small enterprises provide more relative employment than their larger counterparts. Germany has undertaken the right path by making its bank give more funds to the entrepreneurs even during economic downturn. This approach is right because more funds generally means expansion of business, leading to more employment, giving rise to market expansion. This is the right path to get out of recession.
However, I’ve one pertinent question. When you give emphasis to entrepreneurship, is it permissible to bypass the basic labor-related issues in those firms? I’ve no answer to this. That’s why asking.
Good to see a recognition that we need to generate private sector jobs. However, the assertion we need more banks is questionable at most. Banks want to lend… It’s their lifeblood. No new loans, no fees, no job never mind bonus….I don’t doubt there is a capital gap but suspect that might be as much for equity as it is for debt.
Whilst not universally true, if a loan is turned down by more than one bank, then I’d suspect that there is a more fundamental issue with the potential loan/business’s plan and a possible confusion as to whether they need risk capital or loans. Merely adding the number of banks would only likely increase the number of rejection letters. Whilst you can seek to create different incentives for banks, fundamentally they need to be convinced that a borrower can meet its loan repayment schedule. There’s no upside for banks here – the best they can hope for is their original loan (plus interest) back. If the business is successful, the equity holder (as in domestic property) will (rightly) keep the upside. I can see why entrepreneurs are keen for others to take the risk! (Cf too big too fail) However, if the business fails, the bank will likely suffer a substantial loss. Unless Toby Perkins is proposing that either bank capital rules are changed (against the flow of policy since 2008) or his new banks have lower credit standards, then increasing “choice” won’t alter the fundamental fact pattern. Let’s not forget that we’re talking about some of the riskiest loans here.
If there are businesses not getting funded by banks you have to ask why. If the issue is small business people are failing to present their plans in a way financiers are able to understand them, fund advisory clinics to help entrepreneurs in their approach to capital be it equity or debt, recreate investment companies (it’s instructive to read the history of 3i here) run to commercial standards with mandates to invest equity (currently it’s not attractive for banks to provide such equity due to capital rules) and by all means widen the skills base and provide role models to broaden aspiration. If businesses aren’t getting funded because the fundamental idea is flawed, perhaps the entrepreneurs being told by 5 banks in turn that their business has no debt capacity should take the hint that they need to revise their business plans to one which capable of being funded by third party capital.
The majority (over 70%) of ‘small businesses’ consist of 6 people or less, one of which is the owner and at least one other of which is a family member of the owner. A large chunk of them are corner shops, take-aways and small tenanted pubs – that sort of thing. Another large chunk are sole traders – self-employed tradesmen and specialists operating out of their own homes (so don’t pay business rates anyway) and have few tangible assets other than a van and some tools or, as in the case of architects etc, only have ‘intellectual’ assets.
This is why they have problems accessing funding – they basically are not worth anything and are usually only looking for money to cover outstanding bills – ie they are already in trouble. If you doubt me, there is absolutely nothing stopping you from cashing in your pension pot and taking a second mortgage out on your house and lending it to your local tenanted pub or kebab shop. But you wouldn’t be so stupid. And neither are the banks. Banks lend to sure-fire bets in order to make money and the risk dictates the interest they will charge – if at all they are interested. And that is exactly how it should be.
Entrepeneurs need two things from government – a low tax environment and less regulation. Anything else is just interference.