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Lord Sainsbury of Turville3i Enterprise Dinner |
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The Government is committed to encouraging and supporting enterprise and innovation to improve the country's economic performance. We want people to feel that starting and running a business is an attractive and rewarding career option and that they have got a good chance of succeeding. There are four areas where the Government can take action to support such an agenda. They are education, fiscal policy, company law and innovation policy. To begin with though, we need to address the number of people who want to be entrepreneurs in the UK. Research has shown that less than half the population of this country believe they have the knowledge, skills, and experience needed to start up and run a business. Individuals in the UK are also less inclined towards self-employment than those in the US and Germany and are less aware of the opportunities to start up in business. Our economic performance across the country is also wide ranging. In 1999, there were 66 new business registrations for every 10,000 adults in London and 45 in the South East, compared with 29 in Yorkshire and the Humber, and just 21 in the North East. So we have to spread the message around the country that entrepreneurship is important. The main conclusion of the Davies review of enterprise and education, which reported earlier this year, was that building an enterprising society must begin in schools and colleges. However, currently fewer than 30% of young people gain enterprise experience during their school years. And that is why we have allocated additional resources to the Department for Education and Skills to ensure that every child has some experience of business and enterprise, as well as work, before leaving school. This support will rise to £60 million in 2005-6. We are also supporting organisations such as Young Enterprise and the Prince's Trust that work to raise young people's awareness of enterprise and provide them with support and guidance. It is clearly a long-term strategy but Science, Enterprise Centres have helped to change the views of young people and graduates about entrepreneurship. What we have done fiscally Secondly, there is the Government's role in creating the fiscal environment in which enterprise can flourish. The Government has set the stable macroeconomic framework within which businesses can start up and grow. Low inflation, low interest rates and low unemployment economy are enourmously helpful. The Chancellor has introduced a zero percent starting rate for corporation tax, a flat rate VAT scheme for small businesses and 40% first year allowances for SMEs – all measures that ensure that small businesses are able to compete, invest and grow. One of our great strengths in the UK is our venture capital industry, and I say this at a lot of events, not just because I am here at the 3i Enterprise dinner – in 2001 a record £12 billion was raised, over 50% of Europe's venture capital funds, and we have sought to encourage and reward those whose investments enable promising start-ups to become successful businesses. Significant changes to the Capital Gains rules, with the introduction of the business assets taper, have brought in an effective rate of tax for a higher rate taxpayer of only 10%, for assets held in unlisted companies for at least 2 years. I think there are very few countries in the world which have this benefit. The EIS and VCT schemes, both currently under review by the Inland Revenue, have also been effective in bringing in much needed investment into those unquoted trading companies most in need of financial support. At the same time we have promoted share ownership, in particular through the Share Incentive Plans and Enterprise Management Incentives – the latter providing share options schemes tailored to smaller, high risk companies. Giving tax advantaged incentives to recruit and retain key staff, which then allows those companies to achieve their potential. Enterprise Act A third area where the Government has taken action is corporate law. The Enterprise Act represents a key element in our overall approach to creating an enterprise-friendly environment and will strengthen the competition framework; empower consumers and, most importantly of all, reform insolvency law. Our current bankruptcy regime treats those who have failed through no fault of their own in the same way as the small minority who have been irresponsible or reckless; this inhibits enterprise. According to surveys, fear of failure prevents 32% of people in the UK from starting a business, compared with just 21% in the United States. Currently undischarged bankrupts are subject to a wide variety of restrictions for three years. The Act will reduce that period to a one-year in the majority of cases. But at the same time to address the conduct of the small minority who abuse their creditors the Act introduces a tough new civil regime of Bankruptcy Restrictions Orders, where the court can impose restrictions for between 2 and 15 years. What we are saying is that if you fail honourably, you will still pay the same penalty as you would do currently, but you would be able to get back into business sooner. We have also looked at the range of restrictions that are placed on bankrupts, those restrictions add to the stigma of bankruptcy and inhibit entrepreneurship. Whilst some are essential, there are others such as not being able to be a School Governor that are unnecessary. The Act provides for the removal of unnecessary restrictions In the area of corporate insolvency the reforms will also ensure that companies in financial difficulty do not go to the wall unnecessarily. This will be achieved by simplifying and streamlining the procedure when companies go into Administration. That procedure provides a breathing space against creditors action while the administrator decides whether a rescue plan can be devised. We are also changing the status of the Crown when it comes to claiming money from failed companies. The Act will remove a number of preferential claims and they will now rank equally with the unsecured creditors. We expect that a further £70 million will become available and this will provide a fairer deal for unsecured creditors many of which are small and medium enterprises. Innovation I would like to finish with by saying something about what we are doing to promote innovation. The Government is committed to maintaining the quality of our world-class science and engineering base: which is a national asset. That is why as a result of SR2002 the Science Budget will be increasing at 10% per annum in real terms over the three years. But new ideas are only a part of the wider process of innovation that is essential to wealth creation and to the improvement in the quality of our lives. In order to speed up and support the rate of innovation we set out a range of policies in the Science and Innovation White Paper published in 2000. These include schemes such as University Challenge (which provides seed corn funding to universities), Science Enterprise Centres (which provide access to entrepreneurial skills to undergraduates and graduates), and the Higher Education Innovation Fund (which provides funding to universities to encourage them to do knowledge transfer). Under the SMART scheme, SMEs and individuals are able to obtain grants to research and develop technologically innovative products and processes or to buy external consultancy to improve their use and exploitation of technology. More grant offers than ever are now being made under the scheme. The Small Business Research Initiative (SBRI) is a new programme to encourage more high tech firms to start up, or to develop new research capacity, thereby stimulating innovation throughout the economy. This is based on the very successful US Small Business Innovation Research Programme. What this involves is, Government Departments and Research Councils will aim to procure at least 2.5% of their relevant research requirements from small firms. There have been a number of calls for SBRI bids and the contracts awarded are already producing results This year, for the first time, all seven Research Councils plus the Arts & Humanities Research Board are collaborating in the Research Council Business Plan Competition, which the DTI also supports. And we have introduced new instruments to promote the availability of venture capital in universities and in the regions. These policies are now beginning to show impressive results and, I think are helping to change the culture of universities in terms of their entrepreneurial attitude Last year there were 199 spin-off companies from universities, compared to an average of 70 each year for the previous 5 years. There has also been a sharp increase in the number of patents filed, up 22% between 1998/99 and 1999/2000. The proportion of research income funded by companies in the UK is also up and is now at a higher level than even the USA. I was recently in Texas, where scientists who are of very high quality, wanted to work with us in order that they might learn something from us in terms of knowledge transfer. It is also encouraging that we have more than our fair share of fast growth high-tech companies. Recently, Deloitte & Touche published a survey of the 500 fastest growing European ones - 150 of which were in the UK, compared with 51 in Germany, 97 in France and 43 in Ireland. I don't believe that one can quickly change cultural attitudes, although there has, I think, been a remarkable change in our universities in the last fifteen years in terms of the commercialisation of their research. But as a Government we have taken some important steps in improving the environment for enterprise and innovation in the last five years, and we will continue to drive forward our agenda in this area as effectively and as fast as we can. |
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Other speeches by Lord Sainsbury of Turville
(the following are available from the archive) |
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