ENTERPRISE BRITAIN: SUPPORTING SMALL BUSINESS, ENTREPRENEURSHIP AND INNOVATION

New measures outlined in the Pre-Budget Report today will benefit up to 200,000 businesses and entrepreneurs and take forward the Government's support for innovation.

Chancellor of the Exchequer, Gordon Brown, said:

"Enterprise is the lifeblood of the UK economy - it boosts productivity, creates employment and prosperity, and revitalises communities. This Pre-Budget Report demonstrates the Government's commitment to promoting and supporting enterprise across society, and particularly within disadvantaged areas, changing attitudes to enterprise - from the classroom to the boardroom - and tackling the difficulties entrepreneurs can face in starting and growing their businesses."

The Government is committed to boosting enterprise in the UK to help raise productivity and regenerate disadvantaged areas. The Pre-Budget Report and Enterprise Britain: a modern approach to meeting the enterprise challenge set out a series of new measures to:

improve the environment for small business investment and growth;
cut red tape for small businesses and make it easier to comply with Government requirements;
provide additional support to businesses in 2,000 Enterprise Areas - the 2,000 most deprived communities in the UK; and
improve the quality and cohesion of support for small businesses at national, regional and local levels.

Enterprise Britain: a modern approach to meeting the enterprise challenge, published today by the Treasury and the Small Business Service, sets out the revival of the enterprise economy and outlines the challenges facing the UK. It also sets out the steps the Government is taking to ensure that the UK realises its full entrepreneurial potential, by:

creating the most favourable business environment so that all those with the initiative, skills and drive have the opportunity to start up and run a successful business;
tackling specific barriers that inhibit successful enterprise; and
raising levels of enterprise in the UK's least prosperous communities, where these barriers are typically greatest.

Innovation is one of the key drivers of productivity growth, complementing the contribution from entrepreneurship. Two major reviews to improve innovation throughout the UK economy were launched today.

The Government has commissioned a wide-ranging review on the contribution that improving the UK's relative innovation performance will make to close the productivity gap, and the strategy for doing so. To complement this innovation review, the Government has asked Richard Lambert to examine how - building on the research and development (R&D) tax credits and the successful University Challenge and Higher Education Innovation Funds - the long-term links between British business and British universities can be strengthened to the benefit of the British economy.

The innovation review will:

assess the UK's relative innovation performance;
identify the strengths and weaknesses of UK firms, and where market or institutional problems inhibit their innovation;
identify and prioritise how Government policies can address those problems; and
set out a clear outcomes-based strategy, involving all key stakeholders to improve the UK's relative innovation performance compared to other countries.

The complementary business-university collaboration review will:

identify the benefits to business of greater interaction with higher education, how this can be promoted and how any barriers holding back business demand for universities? knowledge and skills outputs can be addressed;
examine the national, regional and local economic impacts of business-university interactions, including how Regional Development Agencies and Sector Skills Councils can best support such interactions;
assess the lessons to be learned from business-university interaction across a range of countries and from best practice across the UK;
analyse how business employers can better communicate their skills requirements to a responsive university sector and how they can improve the attractiveness of career paths to graduates and postgraduates, especially in technology; and
examine the effectiveness of measures such as the R&D tax credits on business demand for research and skills.

To encourage small business investment and cut red tape, the Government will:

extend the VAT flat-rate scheme from April 2003 to businesses with an annual turnover of up to £150,000 - reducing compliance costs by up to £1,000 a year for eligible businesses. A targeted information campaign to raise awareness of the benefits of the scheme is being launched, and the Government will also seek views on whether the scheme could be further extended and improved;
further reform the VAT penalty system from April 2003 so that more businesses are first offered support and advice before incurring penalties; and
undertake research in consultation with key stakeholders, with a view to a further increase in the statutory audit threshold for small companies.

To help new and growing small businesses gain access to finance and business support services, the Government will:

extend eligibility for the Small Firms Loan Guarantee Scheme from April 2003, making it available to a further 25 per cent of businesses and particularly benefiting business in the 2,000 Enterprise Areas;
help small businesses and intermediaries understand and access different finance options. ?Investment readiness? demonstration projects are currently being launched around England. This form of support will be evaluated and, if successful, made more widely available across the UK;
build on the success of the Inland Revenue guide, Starting up in Business. The Government will bring together information on all Government requirements and support for small business by Spring 2003. The new guide will also raise awareness of the types of additional support available to businesses in the 2,000 Enterprise Areas;
work with banks to help develop a virtual university for small business offering a comprehensive service of advice and training for existing and prospective businesses through leaflets, the internet and more formal college courses;
make it easier for small- and medium-sized businesses to understand and comply with Government regulations through a single web portal by summer 2003. The portal, which has been designed around customer needs, enables users to see at a glance which requirements are relevant to them and to carry out some transactions online;
work with Regional Development Agencies (RDAs) to launch a series of Personal Enterprise shows to encourage people to consider starting a business and publicise locally the services and support available for small businesses; and
work with RDAs in the North West, East Midlands and West Midlands to develop pilots of RDA management and co-ordination of business support services.

To help tackle the acute barriers to enterprise in disadvantaged communities, the Government has designated 2,000 Enterprise Areas, covering the most deprived areas in the UK, in which Government measures to boost enterprise are concentrated. The Chancellor announced today a further package of measures to improve conditions for businesses in these Enterprise Areas, including:

a targeted package of support for employers from the Inland Revenue, including assistance from Business Support Teams;
new grants of up to £30,000 from the Business Incubation Fund to cover the costs of feasibility studies for incubators, with higher levels of funding in disadvantaged areas;
proceeding with proposals for Business Planning Zones (BPZs), giving local authorities new powers to streamline the system of planning obligations and facilitate business development;
a series of enterprise events, to encourage potential and existing entrepreneurs and inform them of the services and support available locally, run by the Small Business Service;
a dedicated section in the Small Business Service's Start-Up Guide for new businesses, providing details of help available in the 2,000 Enterprise Areas and how to access them;
an examination by HM Customs and Excise, the Small Business Service and others as to how their support services for businesses, particularly with regard to VAT, can be enhanced and targeted more effectively in disadvantaged areas; and
a new proposal to allow local authorities to retain additional increases in business rates revenue to spend on their own priorities. The Government will consult on this proposal in 2003.

Businesses in the 2,000 Enterprise Areas already benefit from:

stamp duty exemptions for all property transactions up to £150,000, to be extended to all non-residential transactions, subject to EU state aid approval;
increased availability of finance through the Bridges Community Development Venture Fund, increased availability of finance through the Bridges Community Development Fund, and the Community Investment Tax Credit, for which the accreditation process will run before the end of the financial year;
targeted business support through the Phoenix Fund, which received an extra £50 million of funding in the 2002 Spending Review; and
wider regeneration policies coordinated by Local Strategic Partnerships, and supported by the Department of Trade and Industry's PSA target to promote enterprise in disadvantaged communities.

DETAILS

Extension of the VAT flat-rate scheme to businesses with an annual turnover of up to £150,000

Budget 2002 announced an extension to the VAT flat-rate scheme. From April 2003 over 650,000 businesses will be eligible for the scheme.

An increase in the threshold for the default surcharge for VAT

From April 2003 businesses with a turnover of up to £150,000 will be offered help and support if they face difficulties, before they face the prospect of a fine for late payment. Up to 200,000 more small businesses will benefit from this extension.

NOTES FOR EDITORS

Enterprise Britain: A modern approach to the enterprise challenge

Enterprise Britain: a modern approach to the enterprise challenge, published today by the Treasury and the Small Business Service, sets out the development of the new enterprise economy and the role of enterprise in increasing productivity and regenerating the UK's least prosperous communities. The document outlines the evidence to support enterprise's inclusion as one of the five productivity drivers and sets out the principles for Government intervention. It also sets out the full range of policies the Government has already put in place and further steps it will take to stimulate enterprise throughout the UK, and especially in the 2,000 Enterprise Areas.

While entrepreneurs themselves are the main components of change, the Government is playing an important role in promoting enterprise by:

encouraging a fertile business environment through a tax system that rewards rather than penalises success, including one of the most favourable capital gains tax regimes in the world;
working to reduce unnecessary regulation through measures such as the VAT flat-rate scheme and providing a stable macroeconomic environment encouraging investment and limiting risks for entrepreneurs;
targeting specific market failures in finance, skills, business advice and innovation which hinder business start-up and growth; and
breaking down the barriers to enterprise in the most deprived areas in the UK by targeting support on 2,000 Enterprise Areas. Measures include the Community Investment Tax Credit and support delivered through the extended Phoenix Fund.

The recently published Cross-cutting review of Government Services for Small Business noted that Government at all levels spends around £2.5 billion giving support to SMEs. The Small Business Service will shortly be publishing a Framework for Government Policy towards small business to ensure that service standards for SMEs are improved across Government.

The innovation and business-university collaboration reviews

Richard Lambert - former editor of the Financial Times - supported by a cross-departmental team, will lead the business-university review. He will report to Government by Summer 2003. This review will feed into the innovation review, which will also report by Summer 2003. A steering group led by the Minister for Science and Innovation, Lord Sainsbury, will oversee the innovation review. The group will include representatives from Government departments, business, Regional Development Agencies, trade unions and academia.

Both reviews build on the substantial increase in resources being invested in the UK science and engineering base arising from the Spending Review 2002 (an extra £1.25 billion by 2005-06 compared to 2002-03) and in business innovation (through the R&D tax credits and increases to the Department of Trade and Industry's innovation budget). The Government's science strategy focuses on:

investing in the UK's science base, upgrading capital infrastructure and increasing research funding;
moving the funding of university research onto a financially sustainable footing;
improving the supply of people with science and engineering skills, and increasing the attractiveness of science and engineering careers in both business and universities; and
encouraging the translation of research into business innovation, through the new Higher Education Innovation Fund and the R&D tax credits for both small and large companies.

VAT flat-rate scheme

The voluntary flat-rate scheme was introduced in Budget 2002 for businesses with an annual VAT exclusive turnover of £100,000, making around 500,000 businesses eligible to join. The Chancellor also announced that from Budget 2003 the scheme would be extended to businesses with a VAT exclusive turnover up to £150,000.

Reforms to the VAT penalty system

The VAT default surcharge is designed to encourage businesses to submit their VAT returns and tax payments on time. When a business is late in paying its VAT return for the first time a penalty is not applied, but it is notified that if it is late again it will be liable to a surcharge. The penalty rate escalates from 2 per cent of the tax paid late up to a maximum of 15 per cent for each late payment.

The rules were reformed last year for businesses with a turnover up to £100,000 so that they are now offered advice and support and the opportunity to sort out any difficulties before they incur penalties.

As announced in Budget 2002 the qualifying turnover will be increased to £150,000 - meaning that up to 700,000 small businesses will be covered by the reformed system. The likelihood of receiving an automatic penalty will be removed for all but the most persistent late payers.

Starting up in Business

Starting up in Business is a package of measures introduced in January 2001. The package aims to encourage self-employed people to register with the Inland Revenue as soon as possible after starting up, providing new support material for them and seeks to raise awareness of that support. The Inland Revenue's evaluation of the package found that along with increasing numbers of registrations, self-employed people are now registering earlier. People receiving the new material said that the guidance provided a lot of practical help and led them to realise that the Inland Revenue could be a useful source of advice.

Copies of the evaluation report Starting up in Business are available on the Inland Revenue website. Enterprise Areas

Full details of the Enterprise Areas, the most disadvantaged areas across the UK, which are eligible for the stamp duty exemption, are available at www.inlandrevenue.gov.uk/so/disadvantaged.htm

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