Byers' enterprise initiatives come under attack
NEWS ANALYSIS: The DTI has unveiled pounds 1bn of schemes aimed at boosting entrepreneurs
Thursday 11 November 1999
The Secretary of State for Trade and Industry, Stephen Byers, yesterday followed up the Chancellor's announcement on Tuesday of tax breaks to promote enterprise and share ownership by unveiling no fewer than five new schemes aimed at growing, high-tech businesses.
They range from a "Phoenix" fund to promote entrepreneurship in disadvantaged areas and a network of regional venture capital funds to a new UK high- technology fund and proposals for Britain's first "knowledge bank". On top of that, there are plans for a system of enterprise grants worth up to pounds 75,000 for businesses employing up to 250 people.
These DTI initiatives will supplement a range of announcements by Gordon Brown in his pre-Budget report, ranging from a new tax-free employee share scheme to tax credits for research and development and a scheme to reward executives who join high-risk companies with lowly-taxed share options.
In total, the Treasury and DTI schemes could cost up to pounds 1bn. But the vast bulk of that will be in the form of tax foregone. Although Mr Byers puts the cost of the DTI initiatives at pounds 245m, most of this is funding already announced. The only new money on the table is the pounds 30m being put into the Phoenix Fund. Many of the initiatives, such as corporate venturing which allows big companies to offset investment in start-up businesses against tax and capital gains tax breaks for investors, have proved successful in the US.
But here the plethora of new schemes has provoked criticisms that business will become confused about what is on offer while the tax system will become ever more complicated and arcane. Mr Byers sought to deflect these criticisms yesterday by arguing that the DTI was trying to target areas where it could make an impact, using government funds to leverage much bigger sums in from the private sector. "What we are trying to do is make up for the failures in the market. I happen to think that is the best way of doing it," he said.
The DTI estimates, for instance, that the new regional venture capital funds will bring in pounds 250m from the private sector alongside pounds 50m of government money. The bigger question is whether the initiatives will have any impact. The Institute of Fiscal Studies is dubious, saying that many of the measures aimed at small businesses had either been announced before, would have little impact on the economy or were without "any rationale".
Stephen Bond, an IFS analyst, said: "It is very unclear that the plethora of measures targeted at small firms will have any significant impact on the aggregate investment and productivity gaps that the Government has highlighted."
There is also scepticism among the entrepreneurs the Government is seeking to help. Much of the criticism has been directed at the capital Gains Tax reforms, designed to encourage long-term investment in small companies. The problem is that the new lower tax rates will be only for investors who own 25 per cent of a business or employees who own a minimum of 5 per cent.
Ian Sutherland, finance director of The Technology Partnership, an R&D outsourcing company employing 400 people on the outskirts of Cambridge, says: "The CGT changes will have no impact at all on us because we do not have any investors or employees in that category."
ProShare, the lobby group dedicated to promoting share-based investments, suspects the same will apply to many smaller high-tech companies and is urging the Government to allow all investors to take advantage of the new tax breaks.
Another initiative being treated with caution is the new employee share scheme, under which employers can grant staff up to pounds 7,500 worth of shares a year tax free.
Existing Inland Revenue approved share schemes, run under the Save as You Earn system, allow employees to take cash plus interest instead of shares if the shares have underperformed. But the new scheme will require employees to shoulder the risk of the shares falling in value. They will also be locked in for five years.
Perhaps that is why the Treasury estimates the new scheme will be taken up by only 625,000 employees in addition to the 2 million already in the various Revenue-approved scheme. This is also a far cry from the Chancellor's stated objective of doubling the number of workers in employee share schemes.
The IFS was also dismissive of whether the R&D tax credits, targeted at 4,500 small and medium-sized companies, would have much impact.
Mr Bond said that small firms accounted for only 10 per cent of total spending on R&D. "We have serious doubt that the measures will do much to raise levels of investment and R&D spending," he said.
It has not all been brickbats, however. Ian Sutherland believes that the new Enterprise Management Initiative, entitling start-up companies to give up to 10 key employees share options worth pounds 100,000, will be a winner. "It will undoubtedly encourage people to take more risks and I suspect it will be adopted by quite a number of companies in the Cambridge area," he said.
On balance, Mr Brown is still basking in the glory of a pre-Budget report perceived as pro-business. But as the IFS's Mr Bond notes: "In every Budget speech there is a section when the Chancellor, with almost religious zeal, announces a range of incomprehensible measures for small businesses. This Chancellor has raised this art form to new levels."
- 1 Home Office says Nigerian asylum-seeker can’t be a lesbian as she’s got children
- 2 What happens to your body when you give up sugar?
- 3 Drugs Live cannabis trial: Hash is less harmful than any other drug, expert claims
- 4 Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
- 5 Apple and Google users being spied on for a decade because of 'Freak' security flaw
The City of the Monkey God: Archaeologists claim to have found city lost for 1,000 years in remote Honduran jungle
Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
Japanese island overrun with cats after population explodes
Bubonic plague-carrying fleas found on New York City rats
London property boom built on dirty money
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Durham Free School: 'Creationism taught at' free school facing closure
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...