Green Entrepreneurship Forum: Natural Resources

On 18th November we hosted the third instalment in our series of roundtables for the Green Entrepreneurship Forum: a new policy initiative we are running with Mishcon de Reya that brings together the UK’s most successful sustainability driven entrepreneurs to help support their growth and inform us on the policies they need to flourish.

As natural resources are declining and demand is increasing, the commercial value of natural resources that benefit people are becoming more visible. At this online roundtable we discussed how companies could create benefits for both themselves and the planet by investing in “natural capital”.

Alex Rhodes, Head of Purpose at Mishcon de Reya and a Fellow at the Royal Geographic Society, and a Conservation Fellow at the Zoology Society of London, opened the discussion by looking at COP26, in particular the rules to strengthen the integrity of Carbon Markets. The WWF Living Planet Report showed that we have destroyed about 60% of our biodiversity since 1970. Alex observed that this was one of the biggest challenges for the international markets and policy, as many of the countries with significant ecosystems such as rainforests need support transitioning their economies. Alex also identified 3 areas Mischon De Reya has seen changes in relation to biodiversity: 

1. Investment markets have an increased focus on trying to understand what biodiversity is, how to measure it and how to report on it. 

2. Development companies are looking at net positive biodiversity in relation to infrastructure.

3. Changes to agricultural subsidies and that move from the common agricultural policy’s system of paying people by the acre to a new policy of environmental ecosystem based payments which the government is currently trialling.

Next we heard from Ben Goldsmith, CEO of Menhaden and board member for DEFRA. Ben shared that his lifelong fanaticism for nature started as a child, and observed that one of the fundamental problems in our society is that most people lose their connection with nature as they grow into adult life. But, he can see through his work that people are rediscovering that connection in a kind of societally important way, and that is being reflected in global policy. At COP26 policymakers are talking about climate change and nature in the same context. In the UK there are new, significant budget initiatives around nature such as the Nature Climate Fund where £750m is available for restoring peatlands and forests and the new agricultural payments regime which, after a seven year transition period, will be focused entirely on rewarding land managers for restoring nature. The UK is also at the centre of new deals around slowing and ending deforestation, restoring mangroves and creating new marine protected areas. 

We then heard from Will Wells, Founder and President of Hummingbird Technologies, an Agri-tech platform which monitors natural resources from space using imagery and deep learning models and detects climate positive switches in regenerative agriculture. He shared his perspective as a leader in the emerging climate tech landscape, which he believes will not only be a great employer but will make a huge difference to the environment. His career has focused on three big questions. 

1. How can we produce food in a way that is regenerative - whilst agriculture, land use and forestry is responsible for 20% of all greenhouse gas emissions, it also has the potential to be a trillion metric tonne carbon sink?

2. How can technology be leveraged to measure, monitor and verify the natural resources that are being preserved so governments and big companies can reward responsible producers?

3. How can we get government politicians and everyone to unite on upstream biodiversity loss in the form of the global deforestation pledge?

Finally, we heard from Richard Roberts, Head of Research at Volans. Richard shared his enthusiasm for the forum because change requires enlightened businesses to engage in politics - as Ronald Reagan once said “politics is too important to leave it to the politicians”. Richard felt that the snail's pace of the COP26 process masks the significant collective change that is happening to our society. Another quote that gets used is from one of of Ernest Hemingway's novels where a character is asked how they went bankrupt, and the answer is “First, gradually, then suddenly”, which applies to the current environmental agenda which has been gradual for such a long time, but is now shifting into a phase of sudden capital, policy, and technology convergence to address the issue. Richard also shared some of his ‘Tomorrows Capitalism’ research that has shown that we have been running an economy that is in ecological deficit for a very long time, and the consequences of that are now becoming apparent. We are going to be paying off that ecological debt for a long time, but that creates a big opportunity for regenerative agribusiness and any business that is helping to restore nature and biodiversity.

A number of ideas were shared during the ongoing discussion, including the following:

• There is a significant political appetite for the government to raise its ambitions in environmental policy, particularly from younger MPs and Red Wall MPs. 

• The carbon credits system is masking the problem that all production has a carbon cost. Globally we need to ensure the carbon credits system can be strengthened to ensure that carbon credits are invested in a more effective and measured way, such as the Saudi system where developers are making direct contributions to marine conservation which is creating a long lasting carbon sink. We need higher fidelity, better monitoring, better measuring and a more robust and honest carbon credit system.

• Local authorities need to review their procurement system to invest in new green technologies. They are held back by procurement lists which mean they can only work with certain suppliers, stopping them from using more innovative and sustainable solutions. There are also barriers created by local politics which stand in the way of council efficiency and innovation. 

• Procurement is also a challenge when companies are looking to work with farmers. For example, biochar is part of the government plan with a goal to produce 5 million tonnes of it annually by 2040. However, there are barriers for biochar organisations looking to work with farmers who often work in a traditional way and do not have a lot of spare resources to look at new business models or suppliers. DEFRA is investing in organisations which build relationships with farmers to help educate them about new innovations, so these provide an opportunity for entrepreneurs in this sector.

• Schools could educate children on the positive changes that are being made to improve the environment and how these work in different regions.

• Water is becoming an increasingly stressed resource, and one of the areas DEFRA could look at is how to incentivise farmers to put in more nature based solutions, such as chalk streams, rather than relying on water treatment works, and how to get to scale. 

• We also need to review the regulation, which does not recognise the integrated nature of natural solutions. For example, if a company takes waste water from a treatment works and puts it into a wetland, they need a waste management licence.

• Nature is very place based, and there is an argument that we need to shift to seeing more businesses which are grounded in their local communities. This creates an existential challenge for the big multinationals with complex supply chains, but there is recognition particularly in food and agricultural companies that they need to reinvest in regenerative nature. 

• Corporate measurements of sustainability are extremely varied, depending on the individual companies focus or product. For example, Nestle are interested in 1000 farms upstream in the Amazon and deforestation, British Sugar might be about sugar bean fields and soil erosion, Wessex Water might be looking at planting cover crops near a river, and Diageo might be looking at carbon emissions across their supply chain so we can buy a zero emission pint. They are engaged, but it is extremely fragmented. 

• One of the challenges for the UK is we only account for 1% of world carbon emissions, and unless we can change things on a global scale we are making a tiny contribution. To make global changes we need to look at reducing other factors such as conflict and poverty to influence the economies and priorities of other nations. 

• If you took all the degraded land in the world it would be a greater land mass than Russia.

Our next roundtable is on 12th January, where we will be exploring ‘The Value of Nought - How to align your business with Net Zero’ . If you would like to get involved in the Green Entrepreneurship Forum and contribute to this roundtable please email katrina@tenentrepreneurs.org.

Miss the Mark

This week our friends at the Global Entrepreneurship Network (GEN), in partnership with the OECD and EU, released The Missing Entrepreneurs.

GEN’s report finds that if everyone were as active in business creation as men between 30 and 49 years old, there could be an additional 9 million people starting and managing new business in the EU, and 35 million more across OECD countries. About three-quarters of these so-called “missing” entrepreneurs are women and one-in-eight are under 30 years old.

The young are less entrepreneurial than the old. One quarter of the 18 million people involved in starting or managing a new business in the EU are over 50 – even more than the proportion aged 18-30.

It’s not that the young don’t have ambitions. As the report finds, 45% of university students intend to start a business within five years of graduation, yet only 5% of youth aged 18 to 30 are actively working on a start-up. Along these lines, we found with Octopus that 51% of young people in the UK have thought about starting a business, yet 70% of them don’t know where to start. Let’s not let the UK’s equivalent of Whitney Wolfe Herd or Mark Zuckerberg go to waste.

The report also finds that women are less likely than men to be involved in starting and managing new businesses: “Over the period 2016-20, less than 5% of women in the EU were involved in creating a business or managing one less than 42 months old relative to 8% of men. A similar gap appears in OECD countries where 9% of women were starting and managing new businesses relative to 13% of men.” Our latest on this ongoing battle for equality can be found in our Female Founders Forum report.

Finally, the report finds that the share of immigrants among the self-employed in the EU has nearly doubled over the past decade, increasing from 6% in 2011 to 11% in 2020. A lot of this is driven by immigration flows, so any policy interventions designed to improve the quality and longevity of businesses need to account for the fact many immigrants will be less able to navigate their new country’s bureaucracy. We’ve tended to focus on the immigration of high-growth entrepreneurs rather than those starting out – an omission that we will need to fix at some point.

Be Animated
As I’ve written about before, we’re concerned that the trajectory of competition policy is damaging the UK’s entrepreneurial ecosystem. In both Conflicting Missions and Better Together, we spoke out against misguided and unclear rules around mergers and acquisitions that are spooking UK entrepreneurs and investors.

We are one of the few public voices on this vital issue. This week Sam Dumitriu criticised the CMA’s decision to retrospectively block Facebook/Meta’s purchase of Giphy, as well as speaking more broadly about competition policy on a TechUK panel. His succinct speech, which neatly sets out our concerns, can be read here.

A Word on Advice
We’re cautiously planning in-person events for next year, including a host of dinners for our Advisers (we switched to wine and Zoom during the lockdowns). As well as our tried and tested format of dinners led by leading politicians from across the spectrum, we’re planning some with just entrepreneurs.

Now would be a great time to become an Adviser – not least because we’re putting the price up next year (while freezing the price for all current Advisers). Also, as the number steadily grows we will have to cap the number we have. Find out more about becoming an Adviser here and drop me an email if you would like to chat about what’s involved.

Sign up to Philip’s Friday Newsletter here.

Speech to TechUK Panel on Digital Competition.

This is an edited version of a speech I gave to TechUK on Thursday December 2nd at a panel on the new ‘pro-competition regime for digital markets’. Footage of the speech will be available online eventually.

I’m going to focus on a specific part of the proposed ‘pro-competition regime for digital markets’: merger control.

The reforms proposed by the government would block any deal involving a SMS firm that creates a ‘realistic prospect’ of reducing competition – defined as being a ‘greater than fanciful’ chance. 

Under the status quo, the CMA only blocks deals if they think there’s a 50% or more chance of it substantially lessening competition. So this would represent a substantially lower standard. 

It is already used in deciding whether to refer a deal to phase 2 review, but the CMA has already said that historical deals that were not referred to phase 2 would likely be blocked by this, like Facebook/Instagram, so I don’t think that’s as good a guide to what would and wouldn’t be blocked as we might like.

I think the CMA has underestimated the risks of this approach, and has been a bit myopic about the effects it has on the wider economy. 

It’s sensible for the CMA to take a narrow view when it’s reviewing individual cases, but when it’s proposing legislation I’m pretty disappointed that it doesn’t seem to have considered the harms that it can cause if it is given excessively broad powers.

To understand these harms, I think it’s first worth establishing that mergers often play an important pro-competitive role in tech.

I want to focus on two key reasons why we should not automatically assume that all acquisitions in tech are suspect and anti-competitive.

1. Acquisitions are a key route to exit for entrepreneurs

High-growth tech entrepreneurship is inherently risky. Most startups fail and the VCs who fund them know this.

Only a small fraction of businesses will go on to IPO.

According to data provider Beauhurst, only nine equity-backed startups exited through IPO in 2019. 

Last year eight British equity-backed startups were acquired by Microsoft, Google, Facebook, Amazon, and Apple alone.

Acquisitions, in effect, derisk entrepreneurship and investment in high-growth startups, because if your company isn’t going to be the next Facebook they mean you can still make money from it. I don’t think it’s a wise policy to try to force startups to become the next Facebook against their will – but increasingly it seems like the CMA thinks we need to protect startup founders from themselves, and force them into much riskier paths than might be wise.

Because exits are so important to founders and their investors, it should not be surprising that cross-country studies find that restrictions on mergers and acquisitions are linked to declining rates of VC investment. I think it’s likely that if the UK becomes more restrictive, we’ll see the same effect here.

2. Acquisitions facilitate interplatform competition. 

Competition in digital markets often takes place between digital platforms that have a strong position in one market and move into another market dominated by another digital platform.

Acquisitions can accelerate this kind of inter-platform competition. Instead of starting from scratch, platforms can use mergers to gain a foothold in the new market, and do so more rapidly and perhaps more effectively than if they had to develop the product in-house.

A few examples:

• Google’s acquisition of Android increased competition faced by Apple’s iPhone

• Apple’s acquisition of Beats by Dre increased competition faced by Spotify as it accelerated the development of Apple Music

• Walmart’s acquisition of Jet increased competition faced by Amazon in e-commerce. 

As Ben Evans puts it: “for every Instagram, there’s a PA Semi, which Apple bought in 2008 for $278m. PA Semi is the reason Apple is now creating its own chips to power all of its devices, and why those chips are better than anything from Intel or Qualcomm. Intel had a near-monopoly of CPUs for personal computing for close to 40 years, and now Apple has broken that dominance, because of an acquisition.”

If any of the mergers I’ve just mentioned were blocked then its likely competition in digital markets would have declined, and consumers would be worse off as a result.

In essence, and I hope we all accept this, there is a cost to over-enforcement as well as under-enforcement, and I’m not convinced the CMA is taking that seriously.

The question is whether or not new harms in digital markets justify changes to the merger control regime.

I’m sceptical for three reasons.

1. I’m sceptical of the ability of regulators to identify anti-competitive acquisitions in advance.

I recently saw Tommaso Valletti say: “1,000 and zero: mergers done by GAFAM and mergers blocked in the past 20 years.”

I’ve often heard something similar cited as an argument against the status quo, including from Andrea Coscelli and the Furman Report (Tommaso’s numbers are slightly inflated). 

But while these are impressive sounding numbers, the vast majority of these deals were absolutely tiny – half were worth less than $10m and 80% were worth less than $50m. Between 80-90% were acqui-hires of companies with fewer than ten staff members.

When you actually list the deals that people think were problematic, the list is much smaller – Facebook / Instagram and Whatsapp, Google / Waze and Doubleclick, and perhaps a few others. 

We can have different views on whether these should or shouldn’t have gone through, but it’s really just a rhetorical trick to use the biggest number possible that, on further scrutiny, really just muddles the question. 

It feels probable to me that any rule or burden of proof that picks out the rare anti-competitive acquisitions of startups will also end up picking out many more procompetitive or neutral buyouts.

The question for the CMA and the government isn’t just “Should we have blocked Facebook / Instagram?” – it’s “Are we sure that a regime that leads us to block Facebook / Instagram might not also cause us to block the next Apple / PA Semi, or Google / Android?”

2. Arguments about potential competition tend to prove too much.

Take the classic example of potential competition being snuffed out: Facebook buying Instagram.

If Instagram posed a potential or nascent competitive thread to Facebook when Facebook acquired it, with its photo feed and social features, then so must other services with products that are clearly distinct from Facebook, but have social features.

In which case Facebook faces potential competition from other services like Tiktok, Twitch, Youtube, Twitter and Snapchat, all of which have services that are at least as similar to Facebook’s as Instagram’s.

The loss of a single, relatively small, potential competitor out of many cannot be counted as a significant loss for competition, since so many other potential and actual competitors remain. We can define these markets narrowly, or broadly, but we can’t define them in both ways at the same time.

3. Are new powers necessary?

This week we saw the CMA order Meta to sell Giphy. (I blogged about it here)

One of the key justifications was that Giphy is a potential competitor to Meta in the display advertising market.

I think the decision is quite a stretch, but really it raises a more important question: If the CMA is able to stop this deal  under the existing burden of proof, on such speculative grounds, what deals does it want to stop but can’t because the burden of proof is too high? Are we really sure that we want to block deals on even more speculative grounds than Facebook / Giphy? 

Three thoughts on the Giphy ruling

In a ruling released today, the Competition and Markets Authority has retrospectively blocked Facebook/Meta’s purchase of Giphy.

It’s an interesting (and somewhat concerning) decision for three reasons:

1. Potential Competition

There were two main ‘theories of harm’ that led the CMA to call for Facebook/Meta to sell off Giphy. First, there was the concern that Facebook/Meta could limit access to Giphy’s GIF libraries for competitors to Facebook and Instagram, such as Twitter. Second, the CMA saw Giphy as a potential competitor to Facebook’s Display Advertising business.

This is a curious reason because, as my co-author Sam Bowman argues, “It proves too much.” Giphy is not currently a competitor to Facebook in digital advertising — its ad business is simply too small. It is so small, in fact, that the initial takeover did not require board level approval. The CMA’s concern is about competition in the future that could be lost – the fear that Giphy could, in effect, be the next Instagram and some day have a significant presence in digital advertising. 

But if Giphy is a potential competitor in display advertising, then why isn’t, for example, Google’s display advertising business also a competitor today? And why isn’t any company with a large userbase online a potential competitor that could be just as much of a constraint on Facebook as the CMA believes Giphy could be? In effect, the CMA is trying to define the market both broadly, to include Giphy’s potential competition, but also narrowly, to exclude every other actual and potential online advertiser.

This is a more general problem not linked to the specific deal in question. When you define a business as a potential competitor, you also inevitably define other similar businesses as potential competition too. This can radically change our view of how competitive any given market is.

As Sam Bowman and I wrote in our paper Better Together: The procompetitive effects of mergers in tech:

If one firm with a similar, but fundamentally different, product poses a potential threat to a purchaser, there may be many other firms with similar, but fundamentally different, products that do, too.

If Instagram posed a potential or nascent competitive thread to Facebook when Facebook acquired it, with its photo feed and social features, then so must other services with products that are clearly distinct from Facebook, but have social features; in which case Facebook faces potential competition from other services like Tiktok, Twitch, Youtube, Twitter and Snapchat, all of which have services that are at least as similar to Facebook’s as Instagram’s. In this case, the loss of a single, relatively small, potential competitor out of many cannot be counted as a significant loss for competition, since so many other potential and actual competitors remain.

There’s a further problem. In assessing potential competition, the CMA must assess the viability of various different business models. But is it capable of doing so? Questions like “Will Giphy’s paid alignment (i.e. brands agree partnerships with Giphy to show relevant GIFs when users search the library) model provide meaningful competition to Facebook/Meta’s advertising business?” and “Can loss-making Giphy raise additional finance if the prospect of a takeover from a tech giant is off the table?” are far from clear even to the most well-informed analysts of these markets, and it is unclear whether the CMA’s understanding is even that sophisticated. If the CMA’s assessment of market conditions is inaccurate, then there is a real risk of harm to competition and innovation if it erroneously blocks a deal that would have been procompetitive.

2. The CMA prefers structural to behavioural remedies.

The second theory of harm, other than the idea that Giphy might have become a competitor of Facebook/Meta’s in digital advertising someday, was the idea that Facebook/Meta could cut off access for competitors to Giphy’s GIF libraries, which the CMA found did not have many close substitutes. But, if true, this could be addressed by a range of behavioural remedies. 

Why not force Facebook/Meta to maintain open access to the Gif libraries for the near future, at least until competitor libraries are developed?

Alternatively, Giphy’s terms of services could be changed to allow ‘commingling’ where Giphy’s results can be viewed alongside a competitor’s GIFs. In theory, this could help a competitor develop using a Giphy-style ‘paid alignment’ advertising model.

However, both of these remedies were dismissed in favour of a break-up.

3. Is lowering the burden of proof really necessary?

Elsewhere, the CMA is proposing to lower the standard of proof needed to block mergers and acquisitions involving tech firms with “strategic market status” (e.g. Facebook and Google). Under the status quo, the CMA can block a deal if it is deemed to carry a greater than 50 per cent chance of substantially lessening competition. But under the CMA’s proposals, under consideration by the government, the CMA could stop any acquisition by a SMS firm that creates a ‘realistic prospect’ - defined by a court as being a ‘greater than fanciful’ chance – of reducing competition.

The CMA argues that changing the rules is necessary to block deals that threaten potential competitors – such as Facebook/Meta’s takeover of Instagram. But if the CMA is able to block the Facebook/Giphy deal under the status quo, it raises the question: is changing the burden of proof actually necessary to block the deals the CMA thinks need to be stopped? I’d argue the answer is no: it has blocked this deal on relatively speculative potential competition grounds.

There is, of course, a major risk attached to any real or perceived crackdown on mergers. Venture capitalists invest in startups in the hope of a lucrative exit. Most VC-backed businesses fail and only a chosen few are able to IPO and list on a stock market. Mergers and takeovers are a major route to exit. They derisk high-growth entrepreneurship and as a result, we get more of it. Studies show that tougher M&A rules are linked to lower levels of equity investment in startups. If exits are blocked, the result will be less investment, less entrepreneurship, and less innovation.

The Times is already reporting that Amazon “have paused the idea of making any UK acquisitions because it views the country’s regulatory regime as unpredictable.” If the CMA gets what it wants, along with its newly restrictive attitude to acquisitions, it may make it much more difficult for UK startups to grow. Though the CMA probably should not factor in the impact on startup formation and VC investment to its decisions, the Government should. 

The Life Aquatic

Earlier this month, Holden Karnofsky, co-founder of Open Philanthropy and GiveWell, wrote an article on the different ways people think about how to make a difference in the world – something we care about for obvious reasons.

It’s informative for anyone who wants to classify their approach. It may also help you better better understand the basis for why you’re disagreeing with others.

Karnofsky asks us to imagine the world as a ship. We can ‘row’ to help the ship reach its current destination faster, ‘steer’ to navigate to a better destination than the current one, ‘anchor’ to hold the ship in place or prevent change generally, and/or try to make the world more like it was a generation or two ago, ‘mutiny’ to challenge the ship's whole premise and power structure, or focus on ‘equity’ to work toward more fair and just relations between people on the ship.

We’re mostly a ‘rowing’ organisation. We work to advance entrepreneurship, technology and growth in order to make us all better off, something we set out in our evolving policy priorities page.

Karnofsky himself is pro-rowing, but raises some concerns. For example, those in favour of this worldview (e.g. venture capitalists, tech founders, etc.) suspiciously seem to also be personally interested in getting rich. He wonders if we should trust entrepreneurs’ narrative about the world getting better when some seem to clearly benefit from it.

No doubt the motivation of some entrepreneurs and investors aren’t purely altruistic, but they aren’t the reason I think progress matters. Intellectuals like Karnofsky tell the most convincing story as to why the world is getting better, and entrepreneurs, innovators and investors are driving this change.

Another counterpoint raised are things like environmental damage, rising global catastrophic risks and rising inequality. ‘Rowers’ have some answers – for example, entrepreneurs are critical to solving environmental problems – but not all of them. Just to give a micro example, it seems right that the government banned microbeads in 2018 even though there were no doubt some plastic entrepreneurs and investors who lost out. While the unintended consequences of bans and regulations too often outweigh the benefits, they don’t always.

Similarly, there is a strong ‘steering’ and ‘anchoring’ case to be made for the risks that come alongside the huge opportunities from AI – something I raised here back in 2018. It’s something that the Effective Altruism movement is particularly keen on.

And not all approaches are in conflict. As Karnofsky says: “I think that much of the progress the world has seen is fairly hard to imagine without significant efforts at both rowing and equity: major efforts both to increase wealth/capabilities and to distribute them more evenly. Civil rights movements, social safety nets, and foreign aid all seem like huge wins, and major parts of the story for why the world seems to have gotten better over time.”

There is also reason to believe that as we get richer, we get better at dedicating resources towards equity, the environment, and to safety. This means that by 'rowing' you create more interest in 'steering' and 'equity'. So these seemingly differing aims feed into each other.

The Entrepreneur Ship
On the subject of boats, next month the long-time supporter of entrepreneurs, Guy Rigby, is rowing across the Atlantic with David Murray. If successful, they will be the oldest pair ever to row any ocean.

We’re a supporter of their efforts (they have kindly put our logo on the ship) as they’re raising money to support social entrepreneurs. The Entrepreneur Ship will work with UnLtd to co-fund a technical assistance package designed to support diverse leaders from start-ups to sustainable investment over the next 5 years. Find out more about supporting them here.

Big Deal
As Sam Dumitriu writes on the blog, our big cities often function as if they were small cities, losing the benefits of agglomeration. As the Centre for Cities has shown, improving public transport is part of the solution: “67% of people in big European cities can reach their city centre by public transport within 30 minutes, compared to only 40% of the people in Britain’s big cities.” Sam also argues for the densification of cities and suburban intensification near public transport.

Why are big cities more productive ?

Why are large cities more productive than smaller cities? And why isn’t this as true in Britain?

The two questions will (or at least, should) be on the mind of Michael Gove, the Secretary of State for Levelling Up.

Economists give a range of answers for the first question. It may be a simple matter of human capital. The smartest graduates are drawn to the bright lights of the big city. 

There’s also the idea of knowledge spillovers. If you are a programmer in a big city, you will probably end up going to the pub with other programmers from other companies after work. At these informal meetings, new information and ideas about working practices is spread. Likewise, you may jump around from company to company. Solutions move from one company to another. Businesses become more productive. 

In recent years, economists have paid significant attention to the latter factor. For example, economists have studied how a new factory owned by a multinational corporation opening raises productivity levels for nearby manufacturers and found large benefits. 

A new study looks at a different, and under-appreciated, factor: matching. 

Cities allow for deeper specialisation and make it easier for workers to find the best possible job for them. There are a range of reasons for this. For instance, if there are only two employers who are hiring data scientists in town, then a data scientist might be reluctant to move from one employer to another, lest it be a bad match. By contrast, in somewhere like London, they can move between jobs with confidence knowing there is a large pool of employers to choose from so they can find the best possible match.

This new study looks at matching and productivity in German cities across a range of professions. 

In large cities such as Hamburg, the most productive workers within a profession work for the best firms within that industry. While in smaller cities, the distribution of talent across businesses looks rather random. The best architects work for the best architectural practices in large cities, but that’s far from guaranteed in smaller cities.

In big cities like Hamburg, the relatively best workers tend to be in the most high-paying plants, further boosting their wages -> positive assortative matching, PAM

In small cities like Daun, worker-firm matching is all over the place, and it's more random who works for whom /7 pic.twitter.com/eIcUJeL55O

— Jens Suedekum (@jsuedekum) November 24, 2021

This within-city matching between the best workers and best firms has major implications for productivity and regional inequality. If matching in local labour markets had not improved in the largest cities over the past 30 years, then geographical wage differences would be around 2.5% smaller, but aggregate earnings would be €31bn a year lower. In short, this wouldn’t be levelling up.

What are the implications for policy?

The authors note that if you want to ‘level up’ smaller cities by incentivising the best employers from big cities to relocate (i.e. using targeted regional tax breaks) then this will likely negatively affect productivity as we lose the benefits of better matching.

There may be lessons for remote work. If knowledge spillovers between nearby firms drive productivity differences then a shift to remote work may have disastrous impacts on productivity. However, if matching between workers and businesses plays an equally important role then there could be big productivity gains from better worker-employer matching.

The authors suggest that one approach to helping under-performing small towns and cities would be to improve job-matching in those places. This might involve the creation of new job-market institutions such as new learning platforms – no easy feat.

In the UK’s case, the solution may be simpler. Our problem is less that small cities underperform big cities, but rather that our big cities (Manchester, Birmingham, Leeds, Sheffield, Bristol, Newcastle, Nottingham, Liverpool and Glasgow) outside London often function as if they were small cities.

Recent research from the Centre for Cities lays out the problem clearly.

Urban public transport commutes to European city centres are easier and faster than in the UK. Approximately, 67 per cent of people in big European cities can reach their city centre by public transport within 30 minutes, compared to only 40 per cent of the people in Britain’s big cities.

Poor urban transport limits people’s job opportunities and effectively makes our largest cities much smaller than European competitors. This negatively impacts the productivity and economic performance of big cities, costing the UK economy more than £23.1 billion per year.

But the problem isn’t just our public transport infrastructure, it’s also our inability to build houses near it. This makes our commutes longer, creates congestion on our roads contributing to air pollution and climate change, and as a result new investments in public transport deliver less bang for their buck.

If we can fix that by allowing more mid-rise development and suburban intensification around transport, then more workers can feel the productivity benefits of being in a large labour market. 

If you are interested in this policy area and want to learn more about what we’re doing in this space, get in touch with Aria.

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Who Wants to be a Trillionaire?

UK exports are predicted to hit the £1 trillion mark by the mid-2030s. But the Government wants to hit that before the end of this decade, according to a new UK export strategy: “Made in the UK, Sold to the World”.

The Department for International Trade’s strategy comprises a 12-point plan, including the creation of a new Export Support Service. This allows you to contact the government’s export support team by phone or online to ask questions on exporting to new markets, as well as providing the paperwork you need to sell your goods abroad, and rules for a specific country where you want to sell services.

It currently only includes EU countries, which sits a little uncomfortably alongside the overall strategy of “tilting towards the Indo-Pacific.” And while there isn't a single mention of Brexit in the entire report, but the need for an ​​Export Support Service is evidence of one of its costs.

The strategy also announces the extension of the reach and range of the (presumably successful) Export Academy pilot, which offers bespoke training programmes and digital tools to help businesses navigate the technicalities of exporting and finding opportunities overseas.

Currently, you can sign up for a foundation course for those new to exporting, which includes 10 educational online seminars to help create a tailored export action plan, while there are more detailed sector-specific webinars, masterclasses, and virtual missions. They also have market access events that outline the benefits of new market opportunities, including from new free trade agreements. You can find everything you need here.

A new UK Tradeshow Programme will also be piloted, which will provide training and grants for entrepreneurs to attend key tradeshows. This comes on the back of the Government scrapping the similar Tradeshow Access Programme (TAP) earlier this year. I’ve not read anything conclusive – or otherwise – on the value for money of subsidising business to attend trade shows, but at face-value it is odd to scrap a scheme only to replace it with something similar.

Whatever the pros or cons to the exchequer, we’ll share the opportunities as and when we find out more details. For example, in the past we’ve provided departments with case studies from within our network. If you want to be part of one, you might see your face and business being celebrated on government billboards!

Talkin' 'Bout Their Generation
We’re delighted to announce that in the new year the APPG for Entrepreneurship will be kicking off a theme on Entrepreneurship Education at schools. It is kindly supported by FinnCap, which already supports entrepreneurship education in a number of ways.

For our part, we’ve already published three reports on the topic.

As with all our themes, we’ll be hosting a virtual roundtable, putting out a Call for Evidence and then launching it – hopefully in Parliament if they open it up to outside events. We will share more details of the first event next week.

On the topic of enterprise education, Huddersfield and Liverpool John Moores Universities are looking for an entrepreneur to speak about entrepreneurship to their students. They are studying Events Management or International Tourism Management, and it could be in-person or via Zoom. Drop Leslie Fair an email to find out more.

Keep it in the Family
Our friends at the Institute for Family Business (IFB) will be leading their first ever Family Business Week, which kicks off on Monday. As part of it, they’re encouraging family businesses to host MPs and have created a briefing document and template letter on how to do this successfully. As well as using this for Family Business Week, this could be useful for any business looking to get their local MP along to their business.

Price is Wrong
We’re working on a project about the impact of housing and office shortages on the UK’s entrepreneurial ecosystem. We’re looking for case studies and endorsements, so if you would like to share your thoughts on what high house prices and office rents have meant for your business get in touch with Aria.

Reach for the Tsars

“Well, first of all, tell me, is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy. It’s only the other fellow who’s greedy”... “Just tell me where in the world you find these angels who are going to organise society for us.”

So said Nobel Prize-winning economist Milton Friedman. And he has a point. While we should punish people who don’t follow the rules, we need to focus on getting those rules right in the first place. We need systems of government that work with the grain of the crooked timber of humanity – not against it. Everything else is destined to fail.

We already have rules to limit those in power. MPs are not allowed to take money to raise issues in the House of Commons or with the government. That’s why Owen Paterson got into trouble when the Commissioner for Parliamentary Standards found that he had approached and met officials at the Food Standards Agency on behalf of companies and ministers at the Department for International Development. It was also reported that he used his parliamentary office and stationery for his consultancy work and failed to declare his interests in some meetings.

This is not the same as MPs having second jobs. Stephen Bush makes a spirited defence of Geoffrey Cox in the New Statesman, while David Gauke argues in the same publication that banning second jobs would likely lead to talented individuals refusing to become MPs: “​​In addition to discouraging potentially good ministers from becoming or remaining parliamentarians, there would be a decrease in the understanding of business within the Commons and an increase in the potency of the Prime Minister’s powers of patronage. The benefit of attaining ministerial office and the cost of losing it would become all the greater. At a time when the country could do with a few ministers being willing to stand up to the Prime Minister from time to time, this would be unwelcome.”

While the broad point has merits, Gauke fudges the issue. He’s right to defend second jobs, such as his ​​NED roles, as offering “invaluable experience”, but many second jobs don’t pass the smell test so easily, with too many clearly just employed to lobby on behalf of companies. The rules really need to be tightened and enforced.

There is a bigger issue that needs addressing if we really want MPs to focus on legislating: we should pay MPs more. This isn’t excusing the likes of Patterson breaking the rules, or even those pushing them to near breaking. It’s about acknowledging that it’s an important job that MPs shouldn’t feel like they have to top up with external pay. And while they are paid more than the average voter, only a quarter have a second jobs (being an MP is very demanding), and their peers are often earning a lot more. In fact, many of their peers would make better MPs, but are put off by the idea of taking a significant pay cut for a precarious job. I know many such people.

As Tom Chivers argues: “[I]f there’s even a small chance that increased pay would improve the calibre of MP candidates, then since MPs are responsible for decisions about the UK’s one-trillion-pound budget – 38,000 times as big as the sum required to raise their salary by 50% – then it seems like a decent bet. If improving MPs’ wages by that much raised GDP by 0.001% it would pay for itself. Or, in expected value terms, there was a 1% chance of it raising GDP by 0.1%, then it would be a worthwhile bet.”

That said, I don’t think boosting pay (even if it were politically feasible) would suddenly lead to the very best and brightest becoming MPs. In order to prove loyalty, potential candidates need to spend years wooing their local party chair, delivering leaflets and knocking on doors. Let’s face it, that immediately cuts out 99% of the population from wanting the job.

That’s why we need to be more open to bringing outside talent in. The example of the venture capitalist Kate Bingham coming in to head up the UK's Vaccine Taskforce is a textbook example of what can be achieved. This is about bringing in individuals with particular skills to solve problems better than politicians and the civil service. And here, finally, is the relevance of all this to entrepreneurs: often the best people for the job will be entrepreneurs.

To date, business experience has often been the main reason for appointments, with 40% of appointees having a business background. Earlier this year the Commission for Smart Government recommended that the Prime Minister should be able to appoint ministers from outside parliament, which is an idea worth considering.

Of course, Tsars (like Ministers) aren’t always successful. They have tended to work best when brought in for a short burst of activity, to mobilise around an issue, and then to retire. But there are plenty such problems to solve and many entrepreneurs with the skills and public spiritedness to give it their best shot.

Sign up to Philip’s Friday newsletter here.

Small Change

This week, we backed a campaign to make sure small businesses can benefit from the government’s Help to Grow: Digital scheme.

Alongside Coadec, Enterprise Nation, the FSB, and CfE, the Sign for Small coalition is calling for the scheme to be expanded.

Right now, it only supports small businesses with 5-249 employees and only offers vouchers for three types of technology. This means over 750,000 small businesses will not be supported.

The coalition is arguing that the scheme should be expanded in two simple ways. First, it should include small businesses with 2-5 employees, supporting small businesses by giving them a productivity boost through access to subsidised software. Second, the government should broaden the range of software covered under the scheme, offering small businesses a greater variety of tools they need to grow.

We’re not backing this because we want business owners to get freebies – that’s not our style. We’re backing this because we know that tech adoption will help tackle the UK’s sluggish productivity, making the whole country better off. While Help to Grow: Digital might not be the perfect intervention, given it's the main thing the government is doing to try to support digital adoption cutting out micro businesses is an error.

As our Upgrade report found: “If the UK’s 1.1m micro businesses doubled their uptake of key digital technologies, it would lead to a £4,050 average productivity boost for the 4.09m workers employed by micro businesses, restoring four-fifths of lost productivity growth since the financial crisis.”

You can support the campaign by signing up, and forwarding this on to others who you think will back the campaign too.

What is Means to Me
Whether John Major’s Back to Basics, Tony Blair’s Respect agenda or David Cameron's Big Society, flagship policies have a habit of being vague to the point of incoherence. And so, it’s not a huge surprise that the Levelling Up agenda can seem a bit wishy washy.

Neil O'Brien, Minister for Levelling Up, did a decent job of explaining in the Guardian last month: “To empower local leaders and communities. To grow the private sector and raise living standards – particularly where they are lower. To spread opportunity and improve public services, particularly where they are lacking. And to restore local pride, whether that is about the way your town centre feels, keeping the streets safe or backing community life.” And the forthcoming White Paper is expected to put some meat on the bones.

Clearly, this leaves a lot of room for policy. And, given the reliance on the private sector, a significant role for entrepreneurship. That’s why as part of the APPG for Entrepreneurship, which we’re the Secretariat of, we’re writing a briefing paper on the topic, which includes a Call for Evidence.

The deadline for responding is next Friday. You can find the questions here. Please don’t feel obliged to answer them all. We appreciate you are busy and would prefer that you focus on one or two questions where you feel you can add the most value. In fact, many of the most persuasive submissions we have received to past Calls for Evidence only addressed a single question.

Reya Light
As regular readers will be aware, this year we set up our Green Entrepreneurship Forum with the law firm Mishcon de Reya. Whatever targets come out of COP26, we know that entrepreneurs will be critical in creating the technology to reduce carbon emissions and mitigate other environmental harms.

As part of this new Forum, we've already hosted two engaging roundtables. The first with Danny Kruger MP covered a lot of ground, illustrating the breadth of the challenge – but also the incredible entrepreneurial solutions. Read a summary of the launch roundtable here.

The second focused on how sustainable businesses and businesses working for social good can scale through debt and equity fundraising, including the role the government plays – or should play. Read the summary of the funding roundtable here.

Our next event is on 18th November. Get in touch with Katrina to enquire about places.

Sign up for Philip’s weekly newsletter here.

Green Entrepreneurship Forum: Funding

On 21st October we hosted the second instalment in our series of roundtables for the Green Entrepreneurship Forum: a new policy initiative we are running with Mishcon de Reya that brings together the UK’s most successful sustainability driven entrepreneurs to help support their growth and inform us on the policies they need to flourish.

Great ideas should not cost the earth. Many traditional funding routes focus on the monetary value, which can make it challenging for sustainability-focused businesses to raise the funds needed to grow. However, there are ways to raise the necessary capital. At this online roundtable we discussed how sustainable businesses and businesses working for social good can scale through debt and equity fundraising. We also considered whether any additional government support should be offered to the UK’s sustainability driven startups. 

To open the discussion Simon Daniel from Moixa shared his experiences and learnings from raising capital over the last 15 years. He shared a fantastic analogy using an hourglass - the early stages of fundraising can be quite easy - it becomes much harder as companies try to raise Stage A and B funding because of the high risk, and then becomes much easier once the company seed Stage C and D funding or reaches an international level. He shared an experience where he went to find investment for a new technology invention and was told by the  CEO of a large computer company that he would rather buy it for $50m once it had been proven than buy it for $1 mil when it had no traction. He also highlighted the importance of timing - his company developed a smart battery and tried to raise funding, but it was only after Tesla had proven the importance of the technology. He finished off by explaining the importance of carefully managing share options, as getting this right in the early stages can influence the ability to raise more money later on. 

Next we heard some thoughts from the investment side of the table from Vish Srivastava, Managing Partner of Future Business Partnership, a new investment fund with the overarching goal to use traditional investment discipline can be used to make the world a better place. He shared that his investors are looking for businesses that have proven their profitability model and scalability, with the infrastructure and experience to scale a business. Investors who are committed to investing in companies with environmental and social advantages want to see solid KPIs, measurements and targets around their impact. They want to see the same level of commitment to the social benefits as well as the business growth. 

We then asked Mischon de Reya to provide a few words of advice from their legal experience. Alison Keyse and Emma Miller from the Private Equity department spoke about the importance of getting the right investors involved who can bring money but also sector expertise and strategic thinking, and being careful not to have too many investors with different priorities. For green entrepreneurs it is important to allow for longer lead times into businesses becoming revenue generating, as well as choosing the right partners who are prepared to help on that journey. There is also an opportunity for policy to increase support for green entrepreneurship through changes to schemes such as SEIS and EIS , for example investors could be rewarded for holding onto their investments for longer. Sarah Spurling from the Finance department focuses on domestic and cross-border debt financings.  She shared the importance of collecting KPI’s and sustainable evidence about the impact of the business to help not only secure the right lenders but also satisfy the regulatory requirements. 

A number of ideas were shared during the ongoing discussion, including the following:

• If the Treasury were to increase the current threshold for international investment from €8m to €20m during the current Prospectus Regime review, it would unlock additional international investments. The current threshold is stopping businesses from gaining the support because many platforms are looking to work with sums between 8 - 20 million. The Prospectus Regime review may open a number of other opportunities.

• Getting good evidence of sustainability is a huge challenge when businesses are part of a supply chain, so making sure you are clear on your own performance and work with organisations with equally rigorous reporting will help in securing funding.

• The short term nature of private equity and treating companies as commodities is fundamentally incompatible with long term purpose driven businesses. One way to address this is moving to a stewarding structure which separates out control and economics. This is more prevalent in North West Europe and is emerging in the UK.

• Some investment funds are moving in the direction of providing financial incentives to investors by linking their profits to successfully achieving the social benefit promised to long term investors. 

• Certain industries, particularly within the industrial sector, do not currently qualify for EIS support. If the scheme was revised to prioritise decarbonisation it would allow more heavy industry companies to focus on this goal. 

• Private debt financing can often come with crippling terms - a return of 18% per annum is not viable to company growth. Even in an asset holding company there is still a requirement for some level of director liability. There are very few people who can absorb this level of risk. One idea raised was that the government could provide the guarantee rather than the individual to make debt access more favourable.

• The Loan Market Association is currently developing a structure for Green Loan Principles and sustainability linked loans where there are benefits linked to evidencing sustainability, but this is mainly for larger scale businesses. 

• While putting figures on impact reporting can be challenging, it can be easier to tell stories and provide case studies. In some instances this can be enough evidence, particularly with crowdfunding rather than going through traditional funding routes. This also allows the company to keep its managerial control. 

• The US and Europe are easier places to raise money for green technologies. For scalable businesses it is a good idea to think internationally from the beginning.  

Our next roundtable is on 18th November, where we will be exploring ‘ Ecosystem Economics - how natural resources are the future of capitalism’ . If you would like to get involved in the Green Entrepreneurship Forum and contribute to this roundtable please email katrina@tenentrepreneurs.org.

Green Entrepreneurship Forum: Launch Event

In October, we hosted the launch event for the Green Entrepreneurship Forum: a new policy initiative we are running with Mishcon de Reya that brings together the UK’s most successful sustainability driven entrepreneurs to help support their growth and inform us on the policies they need to flourish.

We were joined by Danny Kruger, MP for Devizes, who shared a few opening thoughts about the opportunities presented by COP26 to position the UK as a global leader of businesses driven by social purpose. He championed the many large and small businesses in the UK which are making a significant contribution to sustainability.

The discussion covered a lot of ground, spanning a number of topics, including: 

• The challenges entrepreneurs face when trying to access grant funding and international investment, and the disconnect between the national recognition of the need for innovation versus the support offered to those who are creating new businesses.

• The importance of looking at the global picture. With 70% of emissions coming from households, can the UK do more to encourage UK and global citizens to do more personally to reduce their footprint, and can we alter our export finance rules so sustainable solutions can be taken to emerging markets where credit worthiness is poor but carbon emissions are high?

• The need for clarification of terms such as ‘Net Zero’ – for example the Science Based Target Initiative has clarified it is not going to include offsetting.

• Rather than increasing tax, the government could rebalance taxation in favour of sustainable solutions, for example by reducing tax on electricity but increasing it on gas. 

• The need to focus not only on carbon emission, but increase awareness about the other pressing environmental issues.

• The challenges of waste and emissions in the food production industry, and the opportunities created by new technologies which create food without the land or waste of traditional farming methods.

• Our funding and policies to match the EU investments in green energy. 

• The challenges of gaining procurement from larger businesses and choosing suppliers with sustainable credentials, but also the opportunity presented by aligning your product with the sustainable goals of potential clients, particularly those going through the B-Corp framework. 

• The lack of transparency around the 2050 targets and goals and dates makes it hard for innovations to prepare and develop their products.

• The need to invest in specialist STEM teachers to ensure we have the talent for green businesses in the future.

Key Points raised:

Jim Laird, CEO of Enough raised the point that, given that 15% of carbon emissions are from animal farming, does the government see a genuine path to net zero, or is it a political soundbite?

Danny Kruger MP recognised the huge opportunity of the development of new sustainable proteins, but said we need to find a balance in the laws around agriculture. Quality farming can be a positive for carbon reduction due to the grasslands creating a carbon sink, but battery farming is a contributor to the problem so we do need to insist on quality farming. 

Andy Chen, Founder and CEO of Graphene Composites shared his experience over the past 6 years of his company has applying to various Innovate UK and Export Support programmes, and without exception they’ve commended the ideas but suggested a larger, more established company would be better placed to take the idea and turn it into reality. He asked if there is a will in government to sponsor that key stage of growing entrepreneurs from seed rather than encouraging them to hand them over?

Danny Kruger MP said he was very conscious of the problem, the UK is very good at innovation but less good at holding on to them. His view was the UK needs a more patient long-term sense of what value looks like, and not have a system that seeks a quick return. He knows the Chancellor is conscious of it and it’s part of the strategy to keep innovation in this country.

Bruce Davies, Co-Founder and joint Managing Director of Abundance Investment shared his experience of how his company backs businesses as they go into scale-up mode, and has seen how regulation is a big barrier for green businesses, even though there are some positive movements on the capital market side. He thinks if we can simplify the way we look at capital raising through a review of the prospectus directive to say, 20 to 30 million euros rather than eight million euros, this would be game changing and would open up a whole market of finance which is currently stagnating.

Tom Parkinson, Managing Director of SteamaCo raised concerns that all the efforts made by UK businesses and individuals to reduce our environmental impact will be swamped if developing countries with growing populations continue to burn fossil fuels, and the importance of taking a global view on changing behaviours. 

Jo Hand, Co-Founder of Giki Zero echoed the importance of global behaviour change, identifying that 70% of carbon emissions can be attributed to household emissions, and unless consumers change the way they do things across the world we are not going to reach our targets.

Will Richardson, Founder and CEO of Green Element and Compare your Footprint raised the point that definitions around green terminology are currently unclear. He also stressed the need for the government to offer a clear strategy on what constitutes Net Zero. 

Nick Gibbins,  Co-Founder and Director of New Resource Partners, shared his observation that there is considerable support for green businesses out there, but it takes persistence. BEIS and Innovate UK can be clunky but there are some very good people involved. He suggested the government could do better at supporting businesses as they transition from public funding and grant programmes through to private investment. He also identified that adjusting the tax system to prioritise green energy would make a valuable contribution.

Alex Fisher, CEO of Saturn Bioponics shared that, as a food producer he has seen the imposed waste created at the retail end of the food supply line, and reducing the waste in the food supply chain is something the government could very quickly and cost effectively do to make a huge impact on the sustainability of food production. He also observed that there is a lot of talk about carbon, but there are other significant environmental issues which are also very pressing and need to be incorporated into discourse. 

Professor Xiongwei Liu, Managing Director of Entrust Microgrid talked about the need to promote passive behaviour change in consumers. He suggested the government could help by promoting technologies which encourage small changes, such as limiting the temperature people can heat their homes and businesses, which most consumers would barely notice.

Dinesh Dharmija, serial entrepreneur, ex-MEP and currently promoting Ruserio Solar observed that the EU is providing significant funding to transition to green energy. They have put up 750 billion euros immediately for the 27 countries, and have committed a further trillion euros over the next 20 years, mainly to close down fossil fuel plants across Europe. He raised the question of how much finance the UK government has committed to green energy, and what the strategy is for spending it, recognising the UK would have different priorities and opportunities – for example, in wind energy rather than solar energy.

Andy Aitken, CEO and Co-Founder of Honest Mobile, shared the challenges his business had in gaining corporate clients as a relatively small and new supplier. He raised the point that this must affect a number of green businesses who are just starting out and sparked a wider conversation about how to persuade corporations to employ more innovative businesses as part of their sustainability drives. 

Simon Daniel, Founder and CEO of Moixa, shared his experiences in choosing strategic investors who then become clients as they have an incentive to use your technology. This also enables suppliers to act as change leaders from the inside. He raised the challenge faced by innovators in future planning, and suggested that the government should provide a long-term roadmap setting out dates and goals to hit the 2050 Net Zero target so companies can adapt their products to future needs.

Jarmila Yu, Founder of YUnique Marketing. observed that while there has been an increase of interest in STEM, there are not enough teachers of these subjects. This is a problem for green businesses looking to attract talent as they scale, and more should be done to train more STEM teachers or encourage retired teachers to return to work.

Sofia Belcadi, Founder and CEO of 1001 Remedies, discussed how from her company's creation they set out to only work with truly sustainable suppliers, but the lack of quantifiable metrics made it challenging to choose the right companies to work with, particularly regarding logistics. She also raised the current pressing challenge in choosing sustainable logistic companies as the costs have soared during the pandemic, so companies are being forced to forgo sustainability to fulfil their orders. 

Tom Bourne, Founder of Greenheart Consulting championed the B-Corp framework, and shared that part of their system encourages companies to create policies on engaging with sustainable suppliers, choosing new suppliers and engaging with existing suppliers on impact data. This could provide an opportunity for new suppliers who are already aligned with the corporation's impact goals. 

Alexander Rhodes, Partner and Head of Purpose at Mishcon de Reyadiscussed how the law firm has helped over 100 companies go through the legal changes required to qualify and recently achieved B Corp Certification itself. He shared how valuable the B Corp framework is in making organisations look at aspects of the business which wouldn’t have been looked at otherwise.

Inspiring Innovation

It’s been a packed week. On Tuesday we released our annual Female Founders Forum report, Inspiring Innovation, which features a foreword by the Chair of the Women and Equalities Committee Rt Hon Caroline Nokes MP, and was launched in the House of Lords with Baroness Susan Greenfield.

The report, produced in partnership with Barclays, focuses on high-growth sectors of the economy. While the overall funding gap remains stubbornly high, with just 15% of all equity finance going to female-founded businesses, this year we reveal some interesting differences between sectors.

For example, GreenTech businesses – ie. companies using technology to bring us closer to net zero and other environmental goals – have closed the gap the most, with female-founded GreenTech companies making up 34% of the sector and raising 42% of all equity funding. In contrast, female founders in AI receive a paltry 2% of the funding.

These findings, based on Beauhurst data, are important. Drilling down into differences can focus policy responses and wider government activity. It can also help investors and others who care about equality of opportunity in under-performing sectors target action, and worse performing sectors can all learn from successful sectors about what they're doing to copy them.

As the Head of the Female Founders Forum and author of the report Aria Babu states in this cracking Twitter thread: ”The success of FemTech shows what happens when we have female founders in the Life Sciences. We now have products made by women, for women and companies making millions of pounds doing this.”

The prize is significant. If we can narrow the gender entrepreneurship gap to match similar countries like the US, Canada, Australia and the Netherlands, we would unleash an extra £200bn per year. We have plenty of policy ideas in the report, which could add up to significant change.

The Female Founders Forum is our longest-running project. We started it back in 2016 with Barclays and since then have produced, a series of briefing papers (2016), Untapped Unicorns (2017), Mentoring Matters (2018), Here and Now (2019), Resilience and Recovery (2020), and now Inspiring Innovation (2021).

We’ve still got our regional roundtables to go, with events planned at Barclays Eagle Labs from London to Edinburgh, Manchester, Leeds, Newcastle, Southampton, Cardiff and Birmingham, and are busy thinking about plans for next year. Sign up to the Female Founders Forum newsletter to be kept updated.

Budge it
On Wednesday, Rishi Sunak stood up to deliver his Budget. In short: growth expectations up; spending up; taxes up.

Our influential Job Creators report even got a mention when the Chancellor said: “Half of our fastest growing companies have a foreign-born founder.” It was used to launch another approach that we’ve been pushing for: promigration.

Our Head of Innovation Research, Dr Anton Howes, came up with the term and it refers to countries actively seeking out top talent rather than just having the right rules (which are also really important) – we have a rich history of doing exactly this. In fact, without it, Isambard Kingdom Brunel might have become a famous Russian engineer.

Along these lines, the Government is launching the Global Talent Network. Starting in the Bay Area and Boston in the US, and Bengaluru in India, it aims to find and bring talented people to the UK to work in key science and technology sectors.

The government also set out details for the Scale-up visa, which will be available to fast growing businesses (an average annualised return of at least 20% in the past 3 years) employing someone on a salary of at least £33,000. While I welcome this in our Budget Response, as well as the High Potential Individual visa and Global Business Mobility visa, the devilish detail might be visa fees, which are increasingly exorbitant.

Our response also welcomed the news that the R&D Tax Credit will include spending on data and cloud costs, which is something that we called for with Coadec in our Startup Manifesto, and which many of you backed. We also welcomed and pressed home the need to get more pension money into startups. After all, pension funds contribute 65% of the capital in the US VC market, but just 12% in the UK.

You can read our full Budget response here.

Aria also responded to the plan to consult on an online sales tax in City AM. We’re firmly against the idea, and have been consistently every time it’s mooted: “It is all well and good arguing that we should tax tech giants, but designing a fair system is easier said than done. Why should an independent dressmaker on Etsy pay more tax, so Mike Ashley can pay less?”

The Old Normal
As in-person events come back, we’ll be inviting our Advisers, then Supporters, then Members. It’s free to become a Member, but you’ll need to fill in a short form. From this we’ll know your interests, and so, what to invite you to.

For example, we’re busy planning: a physical breakfast considering the policy implications of crypto; a virtual meeting on the impact of planning rules on cost of housing/office space/labs; six breakfast meetings on further immigration/visa reforms. Some of these will be added to future newsletters, but most will be nearly full by the time you hear about it here. You can also drop me an email to events@tenentrepreneurs.org if any are of particular interest.

It is Easy
Our good friends at FieldHouse have written to the Prime Minister and Rt Hon Alok Sharma MP calling for Green Standards, Green Tax Credits and a Green Tax.

You can read the full letter here. They’ve also published a brief article here, have a Twitter thread here and a LinkedIn post here. It’s backed by a number of notable founders and investors from the UK ecosystem. Drop Iain a message if you’re interested in getting involved.

Sign up to Philip’s weekly newsletter here.

The Entrepreneurs Network's Budget Reaction

This Budget saw the Chancellor cite The Entrepreneurs Network’s research into immigrant founders, make long-awaited changes to R&D Tax Reliefs, and commit to consulting on boosting institutional investment into tech.

These are our initial expert reactions.

Responding to the expansion of the R&D Tax Credit to include spending on data and cloud costs, The Entrepreneurs Network’s Research Director Sam Dumitriu, said:

This is a necessary and overdue change. While generous by international standards, the R&D Tax Credit has become outdated and out-of-touch with the way innovation works in tech. Research and development in AI and machine learning is reliant on access to data and cloud computing power. If startups can’t claim these costs as R&D spending, they are put at a disadvantage relative to tech giants who have masses of user data and large servers.

When we first called for reform in our Startup Manifesto written in partnership with startup lobby group Coadec in 2019, over 250 of Britain’s leading entrepreneurs backed our call. I suspect many won’t be waiting till the alcohol duty reforms come in next April to uncork the bubbly.

Responding to the Chancellor quoting The Entrepreneurs Network research into immigrant entrepreneurs, The Entrepreneurs Network’s Founder Philip Salter, said:

The Chancellor said it himself: half of our fastest growing businesses are founded by people born overseas. Attracting the best and brightest entrepreneurial talent from across the globe will be key to our economic success. The new Scale-Up visa, set out in today's budget is a step in the right direction. Coming with the High Potential Individual visa and Global Business Mobility visa, next year could be a stellar year for high-skilled immigration reform.

The salary threshold of £33,000 is reasonable, but failure or success will rest with fees or hidden bureaucracy. Exorbitant visa fees need addressing and any bureaucracy must be reduced to an absolute minimum – after all, that’s why we were able to attract the best and brightest entrepreneurs from the EU.

The new Global Talent Network will also be a boon for innovation. Having liberal immigration rules only get you so far, but we also need promigration policies like this to proactively identify and persuade the world’s most talented people to settle in the UK.

Responding to the Chancellor’s commitment to consult and work to remove barriers to institutional investment in tech, The Entrepreneurs Network’s Research Director Sam Dumitriu, said:

By the end of the decade, DC pension schemes will have £1tn under management. If just 3% more of that funding went to venture capital, it would amount to a £30bn increase in equity investment available for startups. Pension funds contribute 65% of the capital in the US VC market, but just 12% in the UK.

Yet, at the moment, there are major regulatory and cultural barriers preventing pension funds from investing in venture capital. The Pension Charge Cap may protect savers, but it's too rigid and incompatible with VC fee structures. Modest reforms, such as spreading the fee cap over a number of years, and relaxing valuation regulations on illiquid assets, could unlock massive investments in innovative tech businesses.

Image Credit: HM Treasury.

Drone On

This week we released a briefing paper on the huge potential of the UK’s nascent drone industry, setting out reforms to unlock the sector’s £42bn forecast contribution to GDP.

You can read it here, read Dr Anton Howes’s article on it here, check out coverage in City AM here, sUAS News here, and ADS Advance here. And for the particularly time-pressed, read Anton’s Twitter thread here or our Twitter thread here.

I think this report is testament to the open mind with which we undertake our research. Going into it, I was expecting it would call for less regulation – after all, that’s the standard narrative you would get from an organisation whose job it is to represent entrepreneurs. However, after extensive conversations with entrepreneurs and investors in the space, Dr Anton Howes and Sam Dumitriu worked out that we actually need government intervention to make all recreational aircraft electronically visible to drones.

Drones and commercial manned aircraft are made visible to each other and to novel traffic control systems by small electronic devices that communicate their location to minimise the risk of collision. But the UK’s 20,000 recreational aircraft, which typically operate in the same airspace as drones, are not required to be electronically conspicuous. This is making the mass rollout of ‘beyond visual line of sight’ commercial drone applications unviable on safety grounds.

The cost of these devices is only £500 each, but current owners of recreational aircraft will understandably oppose this new regulation. Therefore, given the economic returns of drones taking off, we think the Government should foot the one-off £10 million bill to equip the UK’s recreational aircraft with electronic conspicuity devices.

On a Budget
On Wednesday, Rishi Sunak will deliver the Budget. We will be watching closely and have our analysis in a Policy Update about the impact it will have on entrepreneurs (sign up for our occasional ad hoc Policy Updates here).

Sam Dumitriu, our Research Director, has listed our top three budget asks. It could be a lot longer. After all, he has written two influential reports on Tax Reform – first for the APPG for Entrepreneurship and the second for the Adam Smith Institute on fixing the bias in the tax system against investment, with another on the way.

These two reports influenced the creation of the super-deduction, which allows entrepreneurs to write-off 120% of their investment costs as a corporate tax expense. However, the super-deduction will expire in 2023 at the same time Corporation Tax leaps to 25%. A long-term solution is needed. That’s why we call for the Chancellor to announce the creation of a permanent unlimited investment allowance – a policy known as full expensing.

We are also calling for the reform and replacement of business rates, with a shift to a Business Land Tax levied on commercial landlords: “This strengthens investment incentives while accelerating the adoption of greener tech. Like the Unlimited Investment Allowance, it would benefit capital-intensive businesses which are disproportionately outside London and the South East.” We are also calling for the modernisation of Enterprise Management Incentives (EMI) and R&D Tax Credits.

We also have also some thoughts on what we don’t want to see:

“At the past two budgets, there has been talk about hiking Capital Gains Tax to fund new spending. This would be a mistake and would undermine the UK’s startups. Entrepreneurs have already been hit by sharp restrictions on Entrepreneurs Relief. Further hikes risk chasing away international entrepreneurs, which is a problem when half of the UK’s fastest growing companies were founded by entrepreneurs born overseas.

It’d also be a mistake to create new taxes on online sales. This wouldn’t be levelling the playing field, but punishing SMEs who have used e-commerce to survive the pandemic. Selling goods online is one area where the UK is a leader, instead of penalising success the Government should look at how it can help even more businesses selling online.”

​​Given that the UK is already ranked just 22nd out of 37 OECD countries in the International Tax Competitiveness Index and set to fall even further, the pressure is on the Chancellor for a pro-growth Budget.

Hope of Land
Do you think the cost of housing and office space is holding back entrepreneurship? We do. To that end, we’ve just kicked off a new project to investigate this in more detail. The first step is a small roundtable in a few weeks to discuss this in more detail. If you’re an entrepreneur, investor or expert and want to get involved, drop me an email to find out more.

Female Founders Forum
On Tuesday afternoon we will launch our latest Female Founders Forum report in the House of Lords, which we partner on with Barclays. If a brand new report wasn't enough, we also have the scientist, writer and broadcaster, Baroness Susan Greenfield, CBE, FRCP, along to say a few words at the launch.

Advisers and Supporters will have already been invited, but can still just drop an email to events@tenentrepreneurs.org to confirm their attendance. Everyone else can request a place here, although places are very limited at this stage so apologies in advance if there isn’t room.

Sign up to Philip’s Friday Newsletter here.

What we want to see at the Budget

This budget is an opportunity to reset and repair relations with entrepreneurs. Every single one of the Government’s priorities depend upon business investment and innovation. Yet the incentives for entrepreneurs to invest and innovate have been cut at successive budgets. Entrepreneurs’ relief was cut, corporation tax went up by 6pp, and now taxes on employment are set to rise. 

The Chancellor’s support for business during the pandemic was vital, but now higher taxes risk crushing a fledgling recovery already threatened by a global supply chain crisis, labour shortages, and debt overhangs.

At Budget 2021, the focus should be on removing long-term barriers to investment and modernising the tax system to support innovative businesses.

Create a Permanent Unlimited Investment Allowance

If we are to lift sluggish productivity and transition to a Net Zero economy, then we will need a step-change in investment. The super-deduction showed the Government’s intent, allowing businesses to write off 120% of their spending on new productivity enhancing-equipment. But the measure was temporary, it will expire in 2023 and at the same time Corporation Tax will jump to 25%. When that happens, the independent Office for Budget Responsibility forecasts investment to decline substantially. In terms of competitiveness, the UK will fall from 18th to 31st on the Tax Foundation’s International Tax Competitiveness Index.

If we’re to become a high wage, high productivity economy then we need a long-term pro-investment solution. The Government should allow businesses to write-off all investments in plants and machinery immediately. Super-deduction aside, Corporation Tax creates a bias in favour of current spending and against long-term investment. This change would eliminate that bias for most types of investment. 

The Government should also look at how tax reform could green our industrial buildings and accelerate the transition to Net Zero. As Eamonn Ives, who wrote our Green Entrepreneurship report notes, almost all old capital is worse for the environment in terms of energy efficiency than new capital - “On average, today’s light bulbs, televisions, kitchen appliances, computers – you name it – are now all markedly more frugal in terms of the power they need to run. If we are to drive emissions down further, uptake of newer, cleaner, greener goods will need to accelerate.”

To supercharge investment in greener infrastructure, they could create a Green Structures and Buildings Allowance set at a higher rate than the Structures and Buildings Allowance (3%), or even 100%.

Reform and Replace Business Rates

Businesses have waited a long time for the Government to fix a Business Rates system that almost everyone agrees is broken. There are rumours they will be forced to wait longer as the Chancellor is set to merely announce sticking plasters and put off fundamental reforms for another year.

The key problem with rates is that they act as a deterrent to investment. Businesses that invest in solar panels, wind turbines, or energy efficiency are hit with higher bills. When Tata Steel rebuilt the blast furnace at Port Talbot their rates bill increased by £400,000 per year.

In the short-term, the Government should exempt all plants and machinery (e.g. blast furnaces, turbines and generators, and silos) from rateable values.

In the long-term however, the Chancellor should announce a shift to a Business Land Tax levied on commercial landlords. This strengthens investment incentives while accelerating the adoption of greener tech. Like the Unlimited Investment Allowance, it would benefit capital-intensive businesses which are disproportionately outside London and the South East.

Modernise EMI and R&D Tax Credit

Innovative startups will drive growth in the years to come, but nurturing their development will require modernising the tax system. EMI, a targeted tax break for stock options, is popular among startups and widely seen as essential to the UK’s tech ecosystem. But it is becoming increasingly uncompetitive compared to what’s offered in the EU and the US. The limits have not increased since 2000 and many early-stage businesses are now ruled out. Increasing the asset capitalisation limit from £30m to £100m would allow more UK scaleups to access the relief and compete for talent internationally.

Similarly, the UK needs to dramatically increase private sector investment in R&D if we are to meet our 2.4% GDP target, but at the moment many business expenses on research are not covered by the R&D Tax Credit. For instance, purchasing data sets or using cloud computing (instead of server rooms) isn’t covered. As a result, the relief has fallen out with the way the modern economy works. It’s time to fix that.

The Government has consulted and commissioned reviews on both these measures, it’s now time to be bold and act.

What not to do: Tax Capital Gains or Online Sales

At the past two budgets, there has been talk about hiking Capital Gains Tax to fund new spending. This would be a mistake and would undermine the UK’s startups. Entrepreneurs have already been hit by sharp restrictions on Entrepreneurs Relief. Further hikes risk chasing away international entrepreneurs, which is a problem when half of the UK’s fastest growing companies were founded by entrepreneurs born overseas.

It’d also be a mistake to create new taxes on online sales. This wouldn’t be levelling the playing field, but punishing SMEs who have used e-commerce to survive the pandemic. Selling goods online is one area where the UK is a leader, instead of penalising success the Government should look at how it can help even more businesses selling online.

Image Credit: HM Treasury.

Un-Truman

Harry Truman wasn’t a fan of nuance: “Give me a one-handed economist. All my economists say ‘on the one hand...’, then ‘but on the other...” The President was being unfair as his economists were presumably just pointing out the trade-offs that exist in every policy decision. But he was also wrong. Some policies have near-universal agreement among economists.

One such policy is a carbon tax. 

We agree with the experts on this one, which is why our Adviser Eamonn Ives pushed it in our influential Green Entrepreneurship report last year. Today, Eamonn makes the case for a carbon tax in more detail in his Pricing Pollution Properly report for the CPS, arguing that market mechanisms such as carbon pricing are most successful at delivering decarbonisation cost effectively.

The reasoning is simple enough: “​​A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.” This doesn’t require anyone to know or predict which particular technology will work best. Instead, price signals tell entrepreneurs where to invest their efforts.

The UK already has a hodgepodge of policies that put a price on carbon. For example, carbon pricing has already played a role in decarbonising the UK, with the collapse in coal-fired power generation explained in large part by the adoption of the Carbon Price Support. However, these should be rationalised. We should price emissions at their source – a flat tax per tonne of emissions from a barrel of oil or unit of gas. This would lead to fewer distortions, such as the fact that while we currently tax household electricity consumption, household gas consumption is effectively subsidised as a result of a VAT discount on electric bills.

One common objection to the idea of a carbon tax is that we would simply offshore our emissions, with the tax displacing industries abroad. The solution to this is a carbon border adjustment mechanism (CBAM) to prevent carbon leakage and retain a level playing field between domestic and foreign goods. It’s something that the EU is phasing in.

The government could raise a lot from a carbon tax. Eamonn’s paper recommends the government rebates the revenue raised from a comprehensive carbon tax back to individuals on an equal basis, through a system of ‘carbon dividends’. But there are other options. Austria, which recently announced it’s implementing a carbon levy of 30 euros per tonne (by 2025 it will be 55 euros per tonne), will put the revenue towards radically overhauling its tax system: corporate tax rates will be cut from 25% to 23%; income tax will be cut for some; family "bonus" allowances will rise from 1,500 to 2,000 euros per child; and health insurance contributions for people on lower incomes will be cut.

A carbon tax isn’t the whole solution for all environmental challenges – and it probably shouldn’t be the only lever for reducing carbon emissions. Eamonn, for example, argues for continued support for British innovators who are researching and developing the clean technological solutions. But one thing is for sure: a carbon tax should be the main policy lever.

We care a lot about this ensuring that Britain’s entrepreneurs are at the forefront of fighting climate change and wider environmental and social challenges. That’s why we’ve recently set up the Green Entrepreneurship Forum with Mischon de Reya, which was launched with Danny Kruger MP earlier this week. Our next event is on how to raise next stage funding for green business and we have more events you might be keen to attend on our website.

  
Funding the Future
How to Raise Next Stage Funding for Green Businesses
21 October 2021
10am to 11am
Complimentary
Find out more
Great ideas should not cost the earth. During this Roundtable we will explore how sustainable businesses and businesses working for social good can scale through debt and equity fundraising.
 

Sir David Amess

“All our hearts are full of shock and sadness today at the loss of Sir David Amess, killed in his constituency surgery in a church after almost 40 years of continuous service to the people of Essex and the UK.” – Boris Johnson

"David and I came into parliament together in 1983. Though on opposite political sides, I always found him a courteous, decent and thoroughly likeable colleague who was respected across the house. This is a terrible and sad day for our democracy." – Tony Blair

"This news is a punch in the face. I worked with David on  maternity safety & mental health for young people about which he was passionate. He was kind and fun – & you always left him with a smile on your face. Today we are left with nothing but grief. RIP dear friend." – Jeremy Hunt

More tributes here.

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Seeing is Believing

We often promote networking and mentoring opportunities here at the Female Founders Forum so it is important that we regularly reflect upon this and make sure the evidence supports what we do. After all, sometimes well-intentioned interventions can be counterproductive.

It seems as though entrepreneurialism is something that needs to be inspired in some people. I’m sure there are some natural-born entrepreneurs who started bake-sales and lemonade stands as children, but these are few and far between. The children of entrepreneurs are more likely to start businesses but this does not seem to be for mostly genetic reasons. Children whose biological parents are entrepreneurs, but are adopted by non-entrepreneurs are half as likely to start a business as children whose biological parents are non-entrepreneurs, but are adopted by entrepreneurs.

This makes sense. Starting a business is daunting. There’s a lot to learn and if you don’t know anyone who has done it, you might not know quite how difficult it may be. People who work with or live in the same neighbourhoods as entrepreneurs are more likely to become entrepreneurs themselves.

The evidence that entrepreneurship has to be inspired is clear but what about female entrepreneurs?

It seems that the degree to which entrepreneurship is contagious depends on how similar one is to the entrepreneur inspiring them. If to start a business you need to see someone else make a success of it, it follows that that person should be relatable in some way.

Girls appear to be more susceptible to this effect than boys. Boys can see male entrepreneurs in the news all the time; Mark Zuckerberg, Sir Alan Sugar and Jeff Bezos are household names. They know that their gender will not hold them back. So if their aunt starts a business that may feel relatable to them. But, more often than not, the profiles of female entrepreneurs are not raised to the same degree as male entrepreneurs. In fact, four out of five teenage girls can’t name any female entrepreneurs. So if their uncle starts a business, that may not feel like something they can do too, but it instead may feel like something that men do.

This shows up in the adoption study I mentioned earlier. If you look at the ungendered data the simple story is that children adopted by entrepreneurs are more likely to pursue entrepreneurship. But if you dig deeper, girls are only more likely to become entrepreneurs if their adopted mother was one. If their adopted father was an entrepreneur this had no impact. Boys were more likely to become entrepreneurs regardless of which parent was an entrepreneur.

Similarly it is not as simple as “people who work with entrepreneurs are more likely to become entrepreneurs.” This effect is stronger the more similar people are to each other. This is true if they are the same gender, of similar ages, if they are both parents or both not parents, if they have the same educational background, or if they grew up in the same place.

This means there is a negative feedback loop, with there being fewer female entrepreneurs and therefore fewer opportunities to inspire women to become entrepreneurs.

Mentorship is one way to avoid this vicious circle. Students who were randomly assigned a mentor who was an entrepreneur were 9% more likely to start a business than those assigned a non-entrepreneur mentor.

We also need to do more to raise the profile of potential role-models who are entrepreneurs. We should celebrate female founders in the news, in films and television, and in schools. This means that everyone has a role to play in supporting female entrepreneurs. It cannot be driven by government policy alone.

This is just one of the topics we discuss in our upcoming thought-leadership report which will be launched at the House of Lords on 26 October.

We will be sending invitations out soon, so if you are interested in joining us, you can sign up to become a member of The Entrepreneurs Network. It’s free to join.

What was in the AI Strategy?

Earlier this year, I wrote about what the UK could do in order to truly lead in AI policy. Six months later, after running out of Reviews, Roadmaps,  and Sector Deals, the UK Government finally released their AI Strategy. And it’s actually not bad at all.

Our first recommendation was to create a pool of cloud compute credits for the UK R&D ecosystem, based on the US National Research Cloud proposal. Encouragingly, the strategy requires the Office for AI and UKRI to evaluate the UK’s computing capacity; this is a positive step, but they should also reach out to the policymakers behind the US NRC and the EU’s Gaia-X to explore interoperability and alignment. 

We also called for lower barriers to immigration; the reformed visa regime is welcome but predates the strategy. More could be done to proactively attract foreign talent generally.

On intellectual property and exemptions for data mining, the Government separately committed to looking into this in their response to a call for views on AI and IP. While on regulation and public sector oversight, we will be able to make a clearer assessment once the Office for AI releases their White Paper on AI regulation in 2022. But it’s encouraging that the strategy explicitly considers societal and long-term risk; it’s also positive that the consultation on GDPR proposes to introduce “compulsory transparency reporting on the use of algorithms in decision-making for public authorities, government departments and government contractors using public data”.

Overall, the Government’s strategy is encouraging: it’s pro-innovation, outward looking and leverages the UK’s leading position in research and innovation. But it’s also too early to celebrate: these are only high-level commitments and it’s the delivery that actually matters. The Spending Review should be a good opportunity for a temperature check and to evaluate which commitments the Government will prioritise. 

Does leaving the EU present a unique opportunity for deregulation?

Does leaving the EU present a unique opportunity for deregulation? In a word: yes; but with some serious caveats.

In the short term though, our post-Brexit transition is leading to more rather than less bureaucracy for business owners.

Most obviously in the need for additional paperwork – export and import declarations – and inspections on trade between Great Britain and both the EU and Northern Ireland.

And just because there are areas where we could diverge from the EU, it might not be in our best interest to do so. There are costs to moving away from EU standards – as there are from moving away from US or global standards. There are trade offs.

For example, if there was a straight choice between getting rid of GDPR entirely and losing our data adequacy agreement with the EU, entrepreneurs would undoubtedly prefer to put up with GDPR rather than cut the flow of data between the EU and UK.

And not everything can be blamed on the EU.

Consider the Online Harms Bill proposals. These will require companies to prevent illegal content and activity online, and ensure children are not exposed to harmful content. Many campaigners don’t think they will be effective, but they will also damage tech startups with sanctions for non-compliance set to be as high as £18 million or 10% of global annual turnover.

Tech startups and investors are also very concerned about government plans to lower the burden of proof needed by the Competition and Markets Authority (CMA) to block mergers and acquisitions involving large tech companies that are deemed as having strategic market status.

Many might not like it, but getting acquired by a Big Tech company is an important way for startup entrepreneurs and their investors to ‘exit’ their firms and make a return. 

Consider Alex Chesterman. In 2001 he started Lovefilm and sold it to Amazon in 2011. But that was just the start of his journey. He has since founded and exited two billion dollar companies: Zoopla and Cazoo. How different would his story be if there was no opportunity to exit his first company? 

When polled by Coadec, half of the UK investors said they would significantly curb the amount they invested if these come into force. If we crack down on M&A activity we will have a lot fewer tech startups – at least in the UK..

And I’ll briefly mention the housing shortage we have in places where people want to live. It is perhaps the most egregious regulatory issue. And once again, it’s not got anything to do with the EU. We need more homes and office space in entrepreneurial hubs, where agglomeration drives innovation, but planning regulations are pricing people and companies out.

That said, there are important areas where we can diverge from the EU. And it’s being driven by innovators – many of whom are already in the UK, and many of whom could be attracted here with the right regulatory teamwork.

The work of TIGRR and the Regulatory Horizons Council is critical here.

Consider the recent success on gene-edited crops.

Recommendations were made in the TIGRR and then the Regulatory Horizons Council reports this year.

Now we are easing requirements for field research on gene-edited crops. This uses gene editing that could be found in nature – not gene modification. 

While the recommendations stopped short of waving these products through to supermarket shelves, or changing the regulations on gene-edited livestock, requirements around commercialisation will be eased.

In the US, we’ve already seen soya-bean oil that has a longer shelf life; in Japan, a gene-edited tomato comes with higher amino acids, and a herbicide-resistant soya bean on its way. EU regulation was clearly holding us back here. 

Technological innovation has the potential to radically transform our lives – everything from drones, autonomous vehicles, ​​cannabinoid clinical research, lab grown meat. TIGRR’s 130-page report is testament to what could be achieved.

But there is one idea I’m less optimistic about. TIGRR’s call for the One-in, two-out rule to be reimposed.

The numbers were fudged in the past, with the most costly new regulations simply not counted.

A National Audit Office report showed that many departments are simply unaware of the costs imposed as a result of their existing regulations. The government of the time had a target of reducing £10 billion in regulatory costs to business over the course of the Parliament. But though they were claiming to have saved £0.9 billion, the report revealed that they had actually increased the net cost to business of regulatory decisions by £8.3bn.

This speech was given at an event of regulation at the Conservative Party Conference.

Toeing Decline

On the back of the Prime Minister’s Conference speech, the self-styled “party of business” came in for a barrage of criticism.

As well as individual challenges from the likes of Next’s Lord Wolfson and Wetherspoon’s Tim Martin, organisations that lobby on behalf of businesses of all sizes and sectors hit out hard. This is no small thing as business groups tend to shy away from being overly critical of politicians in public so they can maintain good relationships and influence. That they’ve unanimously come out so strongly against the Government is significant.

Most interpreted the speech, and Boris’s subsequent comments, as putting the blame on business for what he euphemistically described in his speech as “the present stresses and strains”.

Right-leaning think tanks weren’t happy either. Ryan Shorthouse, chief executive of the think tank Bright Blue, said: “The public will soon tire of Boris’s banter if the government does not get a grip of mounting crises: price rises, tax rises, fuel shortages, labour shortages. There was nothing new in this speech, no inspiring new vision or policy.” While the Adam Smith Institute slammed it for being “economically illiterate”.

In his speech, Boris said: “We are not going back to the same old broken model with low wages, low growth, low skills, and low productivity. All of it enabled and assisted by uncontrolled immigration.” Later he doubled down on this position: “Businesses have been able to mainline low-cost migration for a very long time.”

Ministers are falling in line, with a cabinet minister telling the Financial Times: “Of course they don’t like it, because they’ve had it too easy with cheap foreign labour. But they need to stop whingeing.”

But as the Adam Smith Institute’s Daniel Pryor explains: “Sector-specific, and in many cases temporary, wage hikes do not translate into a broader shift towards a high-wage economy, nor do they necessarily boost productivity. At best, they are a particularly inefficient form of redistribution. Employers are likely to pass on these increased input costs to consumers, pushing up prices and leaving average real wages unchanged, or simply cut jobs.”

Or, as Giles Wilkes puts it: “You can’t make people prosperous when shrinking the pie.”

Or, as ​​Tony Danker, director-general of the CBI, said in response to Johnson’s speech: “Ambition on wages without action on investment and productivity is ultimately just a pathway for higher prices.”

Or, as Danny Finkelstein (inspired by Margaret Thatcher) writes: “As a country, you can’t buy what you can’t pay for. And you can’t — for long, anyway — pay for things with money you don’t earn.”

Or, as our research director tweeted: “You can't increase real wages without increasing productivity. You can't increase productivity by creating shortages.”

You get the idea.

If blaming businesses is the strategy for dealing with the widely predicted new winter of discontent, then it will come at a cost. Most obviously in the short term by turning business owners against the Government. But eventually, we will all bear the cost of treating shortages as some sort of a master plan. And at some point, one would think, the party will bear the cost by being less electable.

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