Margareta Pagano: Osborne's chance to scrap our Soviet rules

Sunday 13 January 2008 01:00

Napoleon would be horrified to find that the nation he damned as one of shopkeepers is now little more than a nation of shop-workers. Never have conditions been so tough for budding entrepreneurs to run and grow their businesses. As the research from the European School of Management (ESM) shows so vividly, smaller British companies are struggling to grow and they lag far behind their continental peers. What's worrying is that for years our Anglo-Saxon model of a liberal open economy has been the envy of the world, if not one of our greatest exports. It's odd too that this slowdown comes when business has become showbiz, with Dragon's Den and the Apprentice reaching cult status.

What's gone wrong? High rents, business rates, maternity and paternity rights, planning restrictions, red tape, higher taxes and fear of failure have combined to make Britain as inflexible as any former Soviet state. Bizarrely, it takes longer to close a business than to open one. It's encouraging that shadow Chancellor George Osborne seems to be taking the issue seriously. His advisers say there will be new policies to improve our enterprise culture closer to an election. But promises to cut red tape will not be enough; we all know that once legislation is in place, it's almost impossible to overturn.

Governments have appalling records for promoting business with grants or subsidies. What they should do is create a culture in which entrepreneurs can be profit-seekers rather than grant-seekers. How can they do that ? It's simple: remove arbitrary barriers but also manage expectations – and build trust by not constantly flip-flopping on tax rates. Mr Osborne has not said how he might tackle Labour's capital gains tax changes, but he should. He should also say Labour's ridiculous attempts to penalise husband-and-wife businesses will be scrapped.

There is another problem brewing: the growth in "freelancers". Quite understandably people are gaining short-term liberty, but ESM's evidence suggests most remain sole traders and they are not investing in pensions. That's just setting up another potential pension bombshell. The question to ask, though, is why so many people are choosing to go solo. Is it the desire for more freedom or a growing reluctance to work for big companies where people feel unfairly rewarded and just wage-slaves ?

Encouraging wider share ownership for workers and profit-sharing has to be the most effective way to improve the working culture; look at the success of John Lewis and even M&S, where staff are partners or share the profits. Even playboy French President Nicolas Sarkozy took time from his Comédie Française last week to hint at new tax breaks to encourage companies to introduce more profit-sharing for staff. French-style incentives are not the answer here. Simpler schemes – and more education – for workers to own shares are what is needed to spread ownership of assets in the UK. This is more skewed than ever, with the bottom 50 per cent of the public owning 1 per cent of all assets excluding housing, compared to 12 per cent 30 years ago. Reducing that gap would be smart if the Tories really mean business.

Meet the optimistic bear

Short and sharp or deep and long? Michael Spencer of Icap, the world's biggest inter-dealer broker which handles $1 trillion of money every day, says this credit crunch is somewhere in between the two – perhaps three to six months at most. Mr Spencer lives and dies by interest-rate volatility so his view is one to listen to. He's a short-term bear who reckons the credit markets need a few more months to shake out. But liquidity will ease once credit spreads tighten and banks start lending to each other again, as they always do.

Looking forward, the fundamentals are good, with China and India being the tractors that haul the Western world out of the mire. These two are forecast to spend some $220bn over the next decade on handbags and other luxury goods alone. Add in the trickle-down of sovereign fund money and Asia's construction boom – from the Bejing Olympics to nuclear plants – and you can see why the optimists might be right.

Quite where Icap goes next will be equally fascinating. It was the best-performing financial stock last year with a rise of 52 per cent – beating one-time takeover target the London Stock Exchange.

Good homes for your cash

It's counter-intuitive but this could be the time to invest in housebuilding companies such as Persimmon and Taylor Wimpey. Shares in Persimmon, the UK's biggest housebuilder, have nearly halved over the past six months to 691p, while Taylor Wimpey has halved to 166p. Both stocks yield 7.5 and 10 per cent respectively and are on multiples of three to four times' earnings. There are risks – zero-carbon regulations mean builders will have extra costs over the next few years until technologies come through – and the housing market is wobbly. But with plans to build three million new homes in the UK, both companies could be rather nice to tuck away.

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