Roger Trapp: Laws may stifle enterprise

So, here we are with Small Business Week just gone and Enterprise Week just over the horizon. Anybody would think we were living in an enterprising environment. Sure, if reality television programmes are anything to go by, there is a lot of public interest in enterprise and politicians know it sounds good to promote enterprise. But has much really changed from, say, a decade ago? Well, according to the soon-to-be-published latest edition of Start Up & Run Your Own Business by Jonathan Reuvid, it probably has. Nearly a quarter of the adults in England are apparently either already active entrepreneurs or thinking about running their own businesses. Moreover, in 2004 a record more than 450,000 new enterprises were started in England and Wales.

However, Reuvid does sound a note of warning. Noting that the past five years have seen UK small and medium-sized enterprises enjoy a relatively favourable business climate compared with that available to their counterparts in other EU countries, he says that the short-term outlook is "less promising, with higher interest rates and residential property prices rising more slowly". He adds: "There are signs that would-be entrepreneurs are becoming more risk-averse as fears of debt deepen."

He also points out the "steadily increasing burden of overall taxation over the past decade has also taken its toll on small businesses". This factor has certainly been thrown into relief in recent days. Only last week tax and bureaucracy were blamed for Britain dropping from second to ninth place in the World Economic Forum's league table for competitiveness. Earlier, the new Chancellor, Alistair Darling, had come up with the classic "sledgehammer to crack a nut" when attempting to deal with the politically-sensitive issue of wealthy private equity investors not paying as much tax as might be expected because of their use of capital gains tax rules that enable them to pay tax at 10 per cent rather than the usual 40 per cent provided they hold an investment for at least two years.

Business groups, including the Confederation of British Industry, immediately attacked the ending of "taper relief" and the introduction of a flat 18 per cent capital gains tax rate as stifling enterprise and likely to hurt small businesses. After extensive lobbying from the CBI and others, it emerged last week that the Chancellor is planning to water down the changes by allowing tax relief on up to £100,000 that small business owners gain when they sell their assets.

While seen as a helpful first step, the concession is not considered sufficient to resolve the issue. The CBI's head, Richard Lambert, said: "There are many other businesses and investors that need help as a result of these ill thought-out pre-Budget changes."

This remark contains the nub of the problem when it comes to governments and small business. On the one hand, entrepreneurs and owners of small and medium-sized businesses like to see themselves as buccaneers fighting David-and-Goliath-type battles and on the other, enterprise is something so intrinsically good that it needs to be supported.

At the end of the day, entrepreneurs tend to be people who back a hunch rather than weigh up all the pros and cons. Take Scott Martin, for example. He came up with the idea for Coffee Nation back in 1999, when he saw that gourmet coffee was becoming increasingly popular. Instead of setting up just another coffee bar, he decided to tap into the huge market for coffee in motorway service stations and other places where people were on the go and wanted a good cup of coffee. His idea was to introduce vending machines that produced the sort of coffee you would expect to drink in Starbucks or Costa Coffee as opposed to the inferior coffee usually associated with machines. Now his company has sites in more than 500 locations around the country and turnover is expected to hit £21m this year. It is even starting to make a profit.

But if such businesses are doing so well, why do they need help? By all means encourage young people to consider a career in business or to set up their own enterprise. It is also worthwhile urging schools to see "creativity" as something that needs to be promoted and that includes entrepreneurship and science as well as arts, as has been recommended by the Commons Select Committee on Education.

But great care needs to be taken when it comes to fiscal inducements. What business needs in order to succeed is a benign economic environment, one in which it is pretty much left to get on with it – within the law, of course. But that law should not be so restrictive that it stifles enterprise or discourages expansion.

Reuvid points out in Start Up & Run Your Own Business (Kogan Page) that "setting up your own business has never been for the faint-hearted". Nor should it be. As they say, if it was easy everybody would do it – and the potential rewards would be so much less. Successful entrepreneurs are those who find opportunities in the least likely places. They do not need to be guided through these rough spots; they just want to know that they can keep a reasonable share of their gains and not have to do battle with too many fiddly bureaucrats along the way.

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