I missed this data when it came out, but it seems worth sharing:
The first thing to note is that Covid killed one in twelve small businesses, in aggregate.
Second, what the data betrays is that the focus of the government on big business is very much misplaced: we remain a small business economy where much that actually happens is delivered by micro and small enterprises. They hardly get considered in policy discussions, however. Nor are they offered the protections that they need to trade fairly because successive governments have made no real effort to eliminate tax cheating from our economy.
Third, when ministers talk about entrepreneurs as if they are the leaders of big business, they are wrong. There is an entrepreneurial group in our society - but they are running small enterprises.
How are the Tories so out of touch with reality? And why isn't there a narrative about this business sector?
Could it be that as Andrew Dilnot once told me, "We don't need to worry about small businesses because if they were any good they'd be big businesses, but they aren't so why waste time on them?" Is that the attitude?
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I have had some exposure over the years to Scottish Government initiatives to increase inward investment and develop new businesses in Scotland. On each occasion I have tried to highlight that SMEs are a major component of the economy and are, in many ways, easier to support and grow than the occasional Unicorn. I am always amazed by the dogged determination of the range of small businesses I see around me, and their willingness to risk personal loss to battle for success (often in spite of bad policy choices by government). The current obsession is major hydrogen projects, and a great deal of money will be spent with results in many cases that are, I anticipate, poor.
I ran a small distance learning company for about 14 years. It was profitable and supported my family. Then the government decided that our courses (and others from similar private providers) although meeting all requirements on the National Learning Framework, would no longer be listed on the National Learning Database which was controlled by Hot Courses, a company owned by Jeremy Hunt. Almost overnight we lost enquiries from Jobcentres, Career Advisory Service, Learn Direct etc. This, combined with the withdrawal of student funding destroyed my business and other similar ones. It also took away the opportunity for learning and obtaining career improving qualifications for those unable to attend college.
Such a nice man that Mr Hunt
During the pandemic many people were put on furlough but , I think, three million, were missed out and I had the impression, many were self employed.
I know of two local businesses who have closed. One it seems because they were not paid and therefore can’t buy materials for the jobs they would have been able to do. Weren’t the Govt going to pass a law saying bills had to be settled in 30 days to protect SME?
The party of business seems more concerned with bankers and finance.
The last is so true
I think that it is the attitude.
The bigger companies are easier to financialise and offer more rewards for plunder.
I’m amazed that anyone wants to start up a company in this country given the paucity of support from government. I know people who have their own businesses and its hard work just dealing with the government and getting on procurement frameworks.
We are obsessed with size and the economies of scale in this country to the point where are blind to the benefits of smaller firms and the niches they occupy so it is fair to say that there are huge gaps in the government knowledge about the economy they are supposed to be managing.
As long as we have the ‘bigger is better’ attitude, I can’t see this changing.
I think you make a fundamental point when you talk about the lack of a fair environment for small businesses to trade in.
Until we tackle corruption and tax fraud and create a level playing in which businesses can compete you can have no idea which businesses are innovative and providing a good service or product.
Instead you end up with a race to the bottom that eventually produces cartels and monopolies that are thuggish neighbours, offer rotten services and break every law that they can get away with.
Spot on
It’s a long time since I read E F Schumacher’s ‘Small is Beautiful: A Study of Economics As If People Mattered’. His evidenced-based arguments are compelling.
Published in 1973, he argued that capitalism brought higher living standards at the cost of deteriorating culture. “After a visit to Burma (now Myanmar) in 1955, Schumacher concluded that poor countries might realise advances in productivity by adopting advanced technologies, but that those advances would do little to increase employment. What was needed, he maintained, was an intermediate technology adapted to the unique needs of each developing country. Moreover, he questioned the presumed necessity of ever-increasing growth, urging instead the development of a non-capital-intensive, non-energy-intensive society. “ https://www.britannica.com/biography/E-F-Schumacher . “His belief that natural resources should be conserved led him to conclude that bigness—in particular, large industries and large cities—would lead to the depletion of those resources.” Schumacher established the Intermediate Technology Development Group (later renamed ‘Practical Action’) to provide technical assistance in selected regions of the world.
In the same year, Ivan Illich’s ‘Tools for Conviviality’ https://en.wikipedia.org/wiki/Tools_for_Conviviality appeared. It is about ‘the dominant role of technocratic elites in industrial society, and the need to develop new instruments for the reconquest of practical knowledge by the average citizen. He wrote that “elite professional groups … have come to exert a ‘radical monopoly’ on such basic human activities as health, agriculture, home-building, and learning, leading to a ‘war on subsistence’ that robs peasant societies of their vital skills and know-how. The result of much economic development is very often not human flourishing but ‘modernized poverty’, dependency, and an out-of-control system in which the humans become worn-down mechanical parts.” Illich proposed that we should “invert the present deep structure of tools” in order to “give people tools that guarantee their right to work with independent efficiency.”
This morning, the BBC’s World Service’ reported that the primary reason that people are joining ‘rebel’ groups in the Sahel is for survival – rather than for ‘religion’ as so often asserted.
The above authors and your blog, Richard, are commendable for justifying arguments with evidence. Have I missed Dilnot’s evidence?
My copy, bought and read when I was 17, is still on my shelves.
Unless the situation has changed late payments of accounts/invoices etc from large companies to smaller companies is a significant problem too. If British Gas can persuade a judge to sign a warrant to allow it to break into a vulnerable persons home and fit a prepayment meter surely something equally easy would allow small business to tackle large business.
Fair pricing too might help small business. Farmers, for instance, have long been bullied and hemmed in by big business.
What we are seeing is a kind of financial entropy in reverse. Instead of a lump of money gradually radiating and dispersing outward benefiting all it is ever more drawn in to central points or large masses sucking pockets and economies dry.
In the 1990s I was writing some software for a major US/UK Soft drinks joint venture when they decided it was necessary to show me their Accounts Payable (Purchase Ledger).
I was amazed to see that the average age of the debts they owed their suppliers was 9 months.
They explained that they took the view that their suppliers were profitable but easily replaceable so making them act as the unwilling suppliers of interest free short term loans was just good business.
At the time, based on my experience of working with companies operating in the UK, it seemed an unusual way to do business.
I suspect now it is not.
I used to have a phrase I used when in practice full time. I would tell a client who was abusing our credit terms that the relationship between an accountant and their client was one of trust, including that the accountant would be paid on a timely basis by the client for services fairly rendered and charged for. I would then tell the client that in our case, the relationship of trust had failed as a consequence of their non-payment and they were no longer a client. They used to howl in protest and complain vigourously, but I cannot recall any occasion when I ever changed my mind: bad payers were also poor recordkeepers and bad taxpayers and I did not need them.
I had the same experience when working for a company owned by the late Lord Hansen, an arch Thatcherite. They kept their poor suppliers waiting so long that one of them went bust (or, my memory fails me, refused to supply them with any more of the product until they were paid what they were due).
As it happens, they supplied a cleaning fluid vital to the production of the company’s main product; the production line had to be stopped as until a new supply could be found.
British business culture eh? Ain’t it grand? Short termism and greed rather than honesty and efficiency.
” I would then tell the client that in our case, the relationship of trust had failed as a consequence of their non-payment and they were no longer a client”. Good for you Richard.
I have to challenge Andrew Dilnots’ assertion regarding small businesses becoming large businesses.
Last week I read a well informed article that demonstrated very clearly that many small businesses do not become large businesses because at I seem to recall above a turnover of £85k they have to start charging VAT at 20% so the owners/partners do not increase in size so they do not have to increase prices by 20% or more.
That suggestion is undoubtedly true, but it’s not the main reason why Andrew Dilnot was wrong. Many small businesses wish to remain that way precisely because that is the way in which they can innovate most and so remain ahead of their market.
Chris, as an HMRC employee working in the area of VAT, I must point out that it’s not necessarily that simple.
Firstly, small businesses (turnover under £150k) can use the FRS or flat rate scheme to pay VAT. This is a simplified scheme that means they just pay VAT on their sales at a rate that depends on the sector they’re in; all the FRS rates are some way, or a long way, below 20%. It was designed to make small businesses’ life simpler.
Secondly, once you register for VAT you are entitled to claim back VAT at 20% on business purchases, as well as having to charge it at 20%. In some cases a business may sometimes, or even always, be in the position of reclaiming more VAT than they charge so they are better off registering for VAT.
In fact, a business can elect to voluntarily register for VAT if their turnover is below the VAT threshold. Some do.
Thirdly, some business activities are charged at the reduced VAT rate of 5%; builders converting non-residential to residential dwellings spring to mind here. They will usually have VAT reclaimable at 20%, so be better off registered for VAT.
There is also zero rate VAT e.g. newbuild residential. This was done to encourage more building of houses, and as above, the builders doing this can often be (legitimately) reclaiming VAT on their supplies at 20%, so are better off being registered. This is deliberate poloicy from government to encourage more house building.
And some major areas of activity in the economy are outside the scope of VAT altogether, mostly in the area of land and property.
This, incidentally, is why people who call for tax simplification are frequently wrong, and are often right wing libertarians who are dishonestly pushing the ‘all taxation is theft’ line.
Thanks
And the last is so true
Some part of this will be difficulties exporting to the EU for small businesses, the general level of decline in workforce participation driven by high taxes, pension pot limits and the increasing number of over 55s who can cash out a contributory pension.
And there will be some small business who self-liquidated to avoid having to repay Covid grants they weren’t entitled to.
It’s a messy picture.
Do i make it past moderation because I mentioned Brexit?
Yes
I came to a conclusion to this question a little while ago when I was fuming about the latest attempts by the Government to regulate small businesses out of existance (MTD!) – in 36 years working in public accountancy practice, entirely with businesses in the small definition (under 50 employees, possibly with one exception that was just over), I have seen just one business make a donation to a political party. I suspect the 7,700 large businesses, and those linked with them, make that number a day, or even an hour. It is not difficult to summise why it is they who receive all the Government attention.
I never saw a business make a donation to a political party
Good point then
And I hate MTD
I assume one major reason – almost certainly the predominant reason once you get close to first causes – is that big businesses pay semi-retired politicians huge sums of money to be advisors/NED’s while small businesses don’t. At heart it’s simply the basest corruption that favours big business.
Another thought – hasn’t the Government encouraged (aka pressured) the unemployed to become self-employed in order to lie about real unemployment? It’s then a sick irony that the same Government does so much to ensure the odds are stacked against those micro businesses.
A brother-in-law ran a rendering (building surfacing) SME for a couple of decades. He was bankrupted at one point by major contractors failing to pay. He grew the business enough to withstand the failure of a major building firm to pay for the rendering of an iconic building in Birmingham (still rumbling on legally!). He quit a couple of years ago, finding out he could make more money working as a manager for repairs to a major contractors work (which often had serious design faults, some seemingly built in to provide an income stream, such as lack of air vents causing damp damage). His contract with them includes up-front payments based on his record, as a precaution.
I’m quite happy to stay a micro business, my focus is on sustainability, not growth and all the opportunities to work differently that come with running a micro biz. I’m a member of Federation for Small Businesses and they continue to highlight the challenges that the sector faces, but to be honest, you can see it’s an uphill struggle with this current government.
I chatted with a friend this morning
He says his choice is him and an assistant or him and 12+ people and either way he makes the same amount
He’ll stick to doing stuff himself and have less hassle