Guest comment by Stephen Newton
Once the stomping ground of successful start-ups and burgeoning unicorns, the recent high-profile decisions by Arm and WE Soda – two UK native success stories – to list in the US over London has cast doubt over the UK’s status as a thriving entrepreneurial hub.
Similarly, the likes of Revolut have recently claimed that the UK government is doing little to support growing tech firms with a cocktail of high taxes, red tape and skills shortages.
Entrepreneurs are the backbone of UK economic growth, with SMEs still accounting for 99% of the UK’s business population. Yet rather than championing this entrepreneurial spirit, feedback suggests that the UK has created an environment that doesn’t accommodate those willing to take the plunge and launch their own business.
Whether entrepreneurs are running a business from their kitchen table or embarking on a journey to create the next Tesla, the UK needs to create an environment that celebrates entrepreneurs with policies in place that set them up for commercial success. When entrepreneurs succeed, so does the wider UK economy.
According to recent government data, the number of small businesses in the UK has dropped to 5.5 million in 2023, compared to 5.9 million in 2020. With the UK economy recently described as ‘listless’ after seeing little growth over the last four years, this drop in the number of small businesses is hardly surprising.
Countries with the most billionaires per capita have the lowest poverty levels. Instead of seeing these success stories through envy, we should celebrate the mindset
In my opinion, and informed by the data, the UK is potentially the hardest place to start a business. Compared to countries like the US, the UK doesn’t champion entrepreneurship enough. The UK must undergo a mentality change – inspiring entrepreneurs requires a cultural shift where people are excited about business growth, success, and its risks and rewards.
Entrepreneurs come in all shapes and sizes, from the plumber who employs three apprentices to the hairdresser who makes their trade in people’s homes, to the regional private law practice that writes wills and does conveyancing with 20 associates, to those who start challenger banks or create fintech start-ups or medical device companies.
Common among all these people is the willingness to put themselves at the mercy of market forces to earn a living wage in the first instance and then potentially make an equity return on selling the business to investors or someone else. The returns will vary. Some will fail outright, some will create a ‘living’ wage, some will generate serious income wealth, and others will create billionaires from equity. But they all start with the same general mindset.
A bigger-picture approach to tax is needed to free up capital
The mentality change required is to celebrate and encourage the willingness to take this risk. Do not be envious of the outcome, no matter what that is. Countries with the most billionaires per capita have the lowest poverty levels. Instead of seeing these success stories through envy, we should celebrate the mindset.
Those entrepreneurs who boldly decide to start their business journey are also being let down by punitive government policies that make achieving success even more challenging. While we might hear that the government is pro-business, I’m yet to see evidence of this. Skyrocketing taxes hold entrepreneurs back and decrease the amount of funding available.
With the UK currently enforcing one of the highest tax rates in Europe, there’s no financial incentive for entrepreneurs to launch a business. Tax breaks are necessary to inspire entrepreneurs, given the financial and personal risks they take to succeed. From my experience, the less tax you have, the more business can flourish and reach its full potential. The government needs to realise that having less of a bigger pie is better than having more of a little pie.
There is now a brilliant business opportunity to create an environment that makes the UK the new mix of Switzerland and Singapore to make the UK a more enticing hub to do business
To kickstart the UK economy and create a less hostile business environment for entrepreneurs, the government needs to take a bigger-picture approach to tax to free up capital. Jeremy Hunt’s recent Mansion House Reforms – which will see more UK pension savings invested in private capital – goes someway to unlocking more investment capital that can be channelled into UK businesses. But this does nothing for inward investment from other countries.
As we’re currently experiencing, high taxes drive completely the wrong behaviour and prevent investors from taking more calculated risks on exciting new business ventures. Less tax for investors and entrepreneurs stimulates growth by making it easier for investors to see outsized returns from other locations. The UK has no talent shortage but lacks available funds, particularly for larger, later-stage venture capital or AIM/FTSE listings.
Now is the time for the government to take a bolder approach to give the stalling economy the jump start that it needs.
Whatever side of the Brexit debate you were on, there is now a brilliant business opportunity to create an environment that makes the UK the new mix of Switzerland and Singapore to make the UK a more enticing hub to do business. Using London’s reputation as a strong and trusted financial centre, the government should position the UK as a business-friendly tax regime with the financial muscle and clout to drive inward investment. This is the innovative action needed to make the UK a more attractive place to do business – benefiting both large and small businesses with better access to funds and talent.
Right now, the exact opposite is happening. For example, there has been a £9bn withdrawal of capital from funds that invest in UK companies since June 2021. Investors do not like investing in UK companies. The talent, creativity and opportunities are still all there. It’s the inability of the government to act to create an environment that encourages success and returns. Investors know this and will not invest.
The UK has huge potential to regain its position as a leading entrepreneurial hub. However, to ensure these business ventures reach their full potential, the UK needs to rethink how it approaches and supports business success. A more holistic approach to tax cuts and less stringent regulation is necessary to boost investment and allow businesses to thrive.
We also need to nurture entrepreneurial talent by championing a growth mindset so that entrepreneurs are prepped for their success, whatever that might be. End the tall poppy syndrome. Celebrate high performance and, most importantly, encourage the willingness to take risks and place yourself at the mercy of the market to make a living or to deliver returns.
Stephen Newton is Founder & CEO of Elixirr
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