The challenge of growth: a European dialogue on SMEs
Introduction Deputy Prime Minister; Lord Mayor; Minister of State; Your Excellencies. It’s a great pleasure to be here today and to be able…
Introduction
Deputy Prime Minister; Lord Mayor; Minister of State; Your Excellencies.
It’s a great pleasure to be here today and to be able to join you, as our European partners, in this important conference.
It’s appropriate we are meeting at the historic Guildhall, parts of which date from the fifteenth century. This splendid building, festooned with the shields of the livery companies, is a potent symbol of the City of London’s proud tradition of enterprise and the wealth it creates.
It invites us to ask - what is the role of government in seeking a stronger, more resilient model of economic growth?
I believe, it is to create a stable long term framework. One that gives entrepreneurs and investors the confidence to start, invest in and grow a business.
Not to tinker and meddle, but instead to be an effective partner, that enables rather than directs business. After all, it’s not Government that creates wealth - it’s private enterprise.
Budget for growth
So last month the Chancellor of the Exchequer, George Osborne, unveiled a Budget intended to galvanise growth, encourage enterprise and support small businesses. Measures announced include:
- a new generation of 21 Enterprise Zones across England, with simplified planning rules, superfast broadband and business tax breaks;
- cutting corporation tax by a further 1%, reducing it to23% by 2014;
- increasing small firms Research and Development tax relief to 200% this year, and 225 per cent in 2012;
- increasing Enterprise Investment Scheme tax relief to 30% from April;
- doubling the lifetime limit on capital gains qualifying for Entrepreneurs’ Relief.
Together they will encourage investment, Research and Development, and reward entrepreneurs.
Regulation
But it’s not just a question of giving tax breaks to small and growing companies - important as that is. Government also needs to remove the barriers which delay and deter business from innovating and growing.
That’s why I passionately believe we must cut through the unnecessary red tape and regulation that weighs so heavily on companies, choking innovation and stifling growth.
As someone who set up my own company in the 1990s, I understand what a problem this has become - especially for small businesses. That’s why this Government is determined to act.
Micro-business exemption
So, alongside the Budget, we announced a three-year moratorium on new domestic regulations for smaller companies or those just starting up.
It will apply to all firms with fewer than ten employees - that’s nearly 96% of businesses in this country. Firms which provide nearly 8 million jobs in the UK, over a third of private sector employment.
Owner-managers of these businesses estimate that they spend between one or two days a fortnight on regulatory issues. That’s a huge amount of time away from the day job - running their business. So we are setting them free to focus on growth.
Of course, it’s not just new regulations we need to get a grip on. Businesses, particularly small and new firms, can feel overwhelmed by the sheer weight of existing rules - covering everything from health and safety, or environmental standards, to employing people.
Red Tape Challenge
And no wonder. The Government has identified 21,800 rules and regulations that affect companies. So today we are asking UK business to tell us which ones should be scrapped.
Which ones are out of date? Which are out of all proportion, with their original purpose? Which ones are just outlandish and need to go?
Starting from today, we are going to publish all 21,800 regulations, sector by sector - so the businesses affected by them can tell us what they think.
They will all appear on a new website - Red Tape Challenge [www.redtapechallenge.cabinetoffice.gov.uk]. We will take action in response to the feedback we get.
And this time we will presume that business knows best; we will assume that the regulations should go. Unless Ministers can robustly defend the need to keep an unpopular regulation, departments will get rid of it.
So as the Prime Minister has said we want to be the first government to leave office having reduced the overall burden of regulation, not increased it.
EU regulation
Of course, a significant proportion of the regulations affecting businesses comes, not from the UK Government, but from Brussels.
So if we want to cut the burden of red tape, and galvanise economic growth, we need to work with our European partners to stem the flow of regulation and ensure our SMEs are not put at a competitive disadvantage.
I know that Hungary is one of the Member States that shares the UK’s view on regulation, so I look forward to our countries working closely together to advance this agenda during the Hungarian Presidency.
There are many simple things that can be done to ease the burdens on business, and small firms in particular.
For example, the European Commission could assume that micro businesses are exempt from new European Union legislation, and grant exemptions when existing regulatory requirements are reviewed.
In cases where there are compelling reasons for small firms to be covered by new regulations, it would still be possible to lighten the load - for example by granting them reduced reporting requirements.
Research by the Commission found that for every €1 per employee big business spends on compliance, a small one spends €10.
When one considers that 99.8% of European enterprises are SMEs; they provide 67% of private sector jobs; and they generate more than half of European GDP - it’s clear that concerted action on EU red tape is long overdue.
There is an obvious place to start - enacting the 31 cost-saving measures for business that are currently stuck in the EU decision making process. These proposals were first identified under the previous Commission. It’s time they were dealt with.
In the longer term, the costs to business from regulation could be cut if the EU adopted a rule similar to the one we have introduced in the UK.
We have established a ‘one in, one out’ principle to control new regulations. Before a Minister can introduce a new regulation, he or she must first examine the costs to business and identify a corresponding cut to existing regulations.
It’s early days, of course, but we are making real progress. Today we are also publishing a Statement of New Regulation, which will be updated twice a year. It shows that the Government’s ‘one in, one out’ rule has saved business £3.2billion so far.
It has also cut by 70% the number of new regulations being introduced - and three quarters of those accepted impose no costs on business.
Over time, our approach will change the very culture of Government in the UK, so regulation is no longer seen as the easy option, but instead becomes the last resort.
This means we can first cap, and then cut, the burden of regulation. If a similar approach were adopted by Brussels the results would be dramatic.
After all, the EU is responsible for at least half of the total regulatory cost to businesses in member states.
Conclusion
I believe this new approach is essential if we in Europe are to renew our economies and secure growth for the long term.
This Government is committed to playing a strong and positive role in Europe, so we are equipped to deal with the challenges and opportunities thrown up by an open and competitive global economy.
But the EU must also adapt to those challenges and opportunities. Our focus needs to be on growth and global competitiveness, on supporting start-ups and business expansion - not more regulation.
Britain stands ready to work with our partners in Hungary, and across Europe, to achieve this shared priority - and so bring jobs and prosperity to both our countries.
Thank you.