Budget 1999: Enlightened help for entrepreneurs

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The Independent Online
JUDGE NOT the Budget's help for entrepreneurs by the Chancellor's rhetoric, but by the life cycle of business creators. Does the support come in ways that will really assist nascent enterprises? The budding entrepreneur needs funds, skilled staff and time. To what extent do Gordon Brown's measures increase the supply of these essential commodities?

As to borrowing, governments have never been able to do much about a problem which - without a business record or security which can be pledged - the high-street banks do not do much to help tackle in terms of loans. The Government can, however, encourage the provision of risk capital. The measure that most obviously tends to this need is the extra money which the Government is to put into venture capital funds for companies starting up in high-technology fields.

Other measures are significant in an indirect way. Cutting capital gains tax may increase the willingness of investors to support new entrepreneurs. Reducing the impact of inheritance taxes, albeit marginally, has the same effect. Providing loan guarantees through the new Small Business Service will also facilitate the raising of capital.

For entrepreneurs I put these aspects of the Budget first, because the initial stages of a company's development, before it is profitable and in a position to pay tax, are the most difficult. Inevitably, Mr Brown has been able to give the more definite help to new companies that have moved into profit. This is because cutting business taxes enables companies to finance more of their expansion from retained earnings. All the same, these much-trumpeted measures will scarcely make the difference between life and death.

The second test of the Budget is this: to get their businesses off the ground and flying, entrepreneurs have an urgent need to attract talented staff. Such people are in short supply. Of course, they would not move to a new enterprise unless they were risk-takers by nature. Yet they often hesitate before jumping, and sometimes turn back. It is impressive that the Chancellor has seized this point. He sees that schemes that provide options on shares in new enterprises can be a valuable incentive, and he is acting wisely in making sure that the tax treatment of the eventual rewards is favourable.

Entrepreneurs are the sort of people who heartily dislike what they see as wasting time in filling out forms and disentangling themselves from red tape. Here is the central task for the proposed Small Business Service. It must identify the frictions and inefficiencies in running businesses that the Government itself creates. For these tasks it requires a strong leader with political clout, otherwise it will be an example of gesture politics.

In fact, I am hopeful. This New Labour Chancellor shows every sign that he understands wealth creation; in that regard he is more enlightened than most of his predecessors, Conservative and Labour alike.