Rhyme or Reason

Hot off the press! As part of our Access All Areas project, this week we released our third report with Enterprise Nation on Access to People.

The report focuses on small businesses, but many of the ideas would help businesses of all sizes. I’ll focus in detail on two recommendations, but I think all eight deserve serious consideration.

First, we should allow the self-employed to get tax breaks for learning new skill sets, even if they aren’t relevant to their immediate work. Currently, if someone wants to access training courses that help them start a new business, or expand into new areas of business, including anything related to their current business, they aren’t allowed.

Of course, there are limits to this policy. We probably shouldn’t be giving tax breaks to learn calligraphy – although it didn't do Steve Jobs any harm. Either way though, it is easy enough for the Government to decide what’s permissible, as is the case in the majority of other OECD countries.

Second, we should allow employers that pay the Apprenticeship Levy – which is 0.5% of an employer’s wage-bill if they pay more than £3m of wages in a year – to transfer even more of their funds to smaller companies down their supply chain, and consider replacing the Apprenticeship Levy with a Skills Levy.

I’m not going to pretend that lots of companies will make use of transferring more of their funds to smaller companies, but it’s nevertheless worth doing for the small percentage that do.

Replacing the Apprenticeship Levy with a Skills Levy would be more transformative. Despite the initial success of apprenticeships, they have fallen sharply across all age groups even with the Apprenticeship Levy. To increase uptake, the government could widen the scope to include other forms of accredited training. It’s an argument that has already been made by the likes of the British Retail Consortium, CIPD, and the Learning and Work Institute – particularly in trying to refocus training on young people.

The report also looks at changes to visas and immigration. In a week where record levels of migration have been announced, it might seem politically naive to call for more of it. But someone needs to to fight the good fight, if only to help shift the Overton window. 

The main cause of the spike is humanitarian. As Oxford’s Migration Observatory notes: “the largest single factor is the introduction of visa routes for Ukrainian refugees and Hong Kong British Nationals (Overseas) status holders. Together these two routes contributed 45% of the 467,000 increase in visa grants between 2019 and the year ending June 2022." The rest is the result of students (39%) and work visas (23%). "Skilled workers, particularly in the health and care sectors, were the main factor behind the increase in work visa grants."

So most of this immigration is both temporary and necessary. Not necessary, of course, in an absolute sense, but certainly in a moral sense. The public agrees, overwhelmingly backing asylum for those fleeing the likes of Putin, and they are massively in favour of letting in doctors, nurses and care workers to tend to our sick and elderly.

The British public also likes international students, but that isn’t stopping the Prime Minister from exploring plans to only allow ‘top universities’ to accept immigrants. Gone is the previous target of boosting the value of Britain’s education exports to £35 billion per year by ensuring we have 600,000 foreign students by 2030 – a rarity in government targets in being met early.

Time to reread Made in the UK, our 2014 report with the NUS, which was prompted by Theresa May's crackdown on international students. History never repeats itself, but it does often rhyme.

Whether Forecasts

Our chickens are coming home to roost. There is no getting away from the incredibly weak economic forecasts in the Autumn Statement. In five years' time, the average household will be poorer than they were before the pandemic.

Many readers won’t be the average household, and entrepreneurs can be successful in the midst of a recession. Even during the Great Depression, and in Communist states for that matter, entrepreneurs found a way. But it’s harder – not least because their consumers are poorer.

But forecasts aren’t destiny. This is no comment on the smarts and credibility of the Office for Budget Responsibility, but an acknowledgement of the limitations of forecasting and known (and unknown) unknowns. Of course, these predictions may just as likely be optimistic, but I think there are things we can do to turn things around: things that we know would work.

But first, the Autumn Statement. As Eamonn Ives, our Head of Research, summarised, it’s a familiar mix of the good, the bad, and the let’s wait and see. We have a thread outlining the main announcements relevant for entrepreneurs.

I won’t go over everything, but focus on a few things that are important to entrepreneurs.

It was pleasing to see the online sales tax being ruled out (again), which we most recently argued should happen in our Access All Areas: Finance report with Enterprise Nation.

Perhaps it’s only ever raised as a possibility in each Budget so organisations like ours can pat the government on the back for not doing it (like taxing pensions). I think the threat is real, with powerful voices, including successive Tesco bosses, calling for an online sales tax. And while the Treasury will push back because the economics don’t add up – a bad tax only takes one bad decision to implement. They then have a tendency to prove hard to ditch – Stamp Duty being a case in point."

We were delighted to see the planned changes to EIS, SEIS and VCTs will be retained. It’s impossible to have a roundtable without our entrepreneurs proselytising about the value of these schemes to any politicians who will listen. That’s why we’ve long-supported them to fix a clear market failure.

In fact, we’re in the process of working on a report with the All-Party Parliamentary Group for Entrepreneurship on the value of these tax breaks. While the Call for Evidence is now closed, please feel free to reach out to Aria Babu, our Head of Policy, if you’ve got something you think we might miss.

The Chancellor also pledged to bring forward a bill to provide new powers to the ‘Digital Markets Unit’. In its previously planned iteration, we identified significant risks to competition, innovation and entrepreneurship. The wording we have in the Autumn Statement is unclear – focusing on laudable things like introducing measures to prevent subscription traps and fake reviews – but devil, or not, will be in the detail.

Jeremy Hunt also promised to ensure regulations are fit for purpose. While there are limits to divergence from the EU and other markets, I think there are some emerging technologies where we can carve out a niche as a testbed nation.

There are many other announcements that you’ll find on our thread, covering NICs, VAT, R&D, Catapults and business rates that I’ll pick over in the coming weeks.

Snap back to reality. So what next?

Yesterday I was at a talk on ‘Why do liberal democracies feel stuck?’ at King’s College, London, chaired by Munira Mirza (see below for our event with her) and featuring the economist Tyler Cowen. In short, Cowen argued for optimism, asking the audience to weigh up all the problems we see in the world against the immense talent we now have. With new technologies like vaccines and nuclear fusion, for Cowen, the latter always outweighs the former. And that’s where entrepreneurs come in. With or without government, entrepreneurs will find a way.

Even outside of the Autumn Statement, the UK Government can speed up this process – whether that’s immigration (in fact, OBR analysis accompanying the Autumn Statement revealed that Jeremy Hunt is relying on a surge in net migration to more than 200,000 people per year to help deliver economic growth – don't tell Suella Braverman), planning policy and procurement (which is already happening) or childcare reforms (which we will cover in our forthcoming Female Founders Forum report).

Another area the government should push ahead with is infrastructure. Sam Dumitriu (formerly of this house), is getting stuck into fixing our slowdown of building stuff with Britain Remade. As it says on their website: “We built the world's first railway, the world's first coal-fired power station, and the world's first commercial nuclear power station.”

Their first finding is that we aren’t necessarily a nation of NIMBYs, with polling revealing that wind farms and solar fields do have popular support – especially if they bring a discount on fuel bills – even if built near people's homes.

In his speech, the Chancellor reminded us of his entrepreneurial roots, stating his ambition to “turn Britain into the world’s next Silicon Valley.” What is the Government waiting for?

Back to the Civic Future

There are lots of first-rate Members of Parliament – including, of course, the many MPs reading this to keep abreast of what entrepreneurs need to succeed. But as I’ve argued for a long time, we could do better. In fact, there are strong arguments to suggest that things have been getting worse. But beyond diagnosing the problem and suggesting we pay them more, I haven’t heard of any practical solutions. Until now.

This week, Munira Mirza, the former director of Boris Johnson’s No 10 policy unit (until she resigned), launched Civic Future. She thinks that too few of our most capable citizens aspire to enter public life, and Civic Future is her non-partisan answer to that problem.

Munira set out her stall in The Times and on the Today Programme (50 minutes in). Civic Future will be launching a fellowship next year: a one-year programme to provide participants with the knowledge, skills, and support needed to become great public leaders – regardless of their politics. (People from Labour and the Liberal Democrats are also involved.) Through evening seminars, weekend residential events, and overseas trips, fellows will discuss the most important moral, technological and governance issues of our time and meet senior figures in government, industry, and society. The programme is designed to be conducted alongside a full-time job.

This isn’t just about becoming a politician – public life is much broader than that, including those chairing and sitting on the board of public bodies. I know many of you reading this are incredibly civic-minded. Despite the mischaracterisation in too much of our media, entrepreneurship isn’t red in tooth and claw, but a collaborative endeavour.

Entrepreneurs aren’t the only group who Munira is targeting, but I think they should be a key one. She agrees, so we will be hosting a dinner with her soon. I have a long list of Advisers and wider entrepreneurs in my head who will want to attend this, but do let me know if you’re interested. You should also take a look at their website for more public events and sign up to be kept updated.

Getting good policies is more than just good ideas. We also need leaders in public life who can put them into practice. Both through Civic Future and other mechanisms, we want to ensure that some of the UK’s latent entrepreneurial talent is applied to the public sector.

Crisis of Care
The cost of childcare in the UK is prohibitively expensive. As Aria Babu explains in an article today, this is due to a number of factors:

“We force children into excessively regulated, formalised care; childminders and nursery teachers face a heavy-handed and bureaucratic curriculum that requires taking several weeks out of paid employment to learn; and we have the strictest adult to child ratios in Europe. Considering these factors, it is unsurprising that we face childcare shortages and spiralling costs.”

This is a problem that disproportionately impacts women, which is why we hear about it so often from the many of the female founders in our network. It’s a tough nut to crack. Childcare suffers from Baumol's cost disease (the rise of wages in jobs that have experienced little or no increase in labour productivity), but that shouldn’t leave us hopeless. Instead, we need to redouble our efforts to find sensible policy changes – such as those Aria maps out.

Western Front
We got a shoutout in Parliament! In a debate on the contribution of international students, Matt Western MP cited our research which found that half of the UK’s fastest growing companies have an immigrant founder. This report was kindly sponsored by a successful immigrant founder: Sukhpal Singh Ahluwalia. I think it's time we updated the statistic, so if there are other similarly civic-minded entrepreneurs or companies who want to support an update, do let me know.

In related news, a new paper provided yet more evidence of the benefits of immigration to an economy – the authors found that immigrant-founded startups in the US are 35% more likely to hold a patent than those founded by US natives.

Like & Subscribe

Given this Government’s poor polling, it’s hardly a surprise that entrepreneurs are suddenly interested in engaging with His Majesty's Most Loyal Opposition. This week we held a couple of roundtables as part of Labour’s Startup Review and to be frank, everyone in attendance assumed Labour is now the government in waiting.

Of course, Labour supporters (or those that just want a change) shouldn’t be adding up their poultry any time soon, but more importantly, we shouldn’t be unambitious for the next two years.

There are limits on what can be achieved – particularly in a polycrisis. The Tories can’t even keep Matt Hancock from 'the jungle' to “deliver important messages to the masses” and/or bag £400,000 and/or gamble on rebuilding his public reputation. As James Forsyth writes in The Times (paywall): “​​he has taken the view that if he is not at the top table, he may as well do his own thing, even if he loses the whip. This shows how unbiddable former ministers can be and there are now dozens of them on the Tory benches.”

Forsyth is a Tory insider who knows which way the wind is blowing. It’s telling that in the same article he thinks education is an area where the party can make a difference. He’s particularly optimistic about ​​Gillian Keegan, the new Secretary of State for Education and first degree-level apprentice to enter parliament. Beyond school, college and university, Forsyth thinks Sunak will also focus on in-work training: ”He has long bemoaned the fact that British employers spend barely half the European average on training their workers.”

It’s ironic that such a potentially short premiership may focus on a policy area that even if executed impeccably would take years to pay off. It’s also one that has suffered from so much chopping and changing that if you were to ask anyone in the education sector their top priority it would likely be for stability.

Nevertheless, as The Times Education Commission findings show (only partially paywalled), we can, and must, do better. For our part, we think there are tweaks to support the entrepreneurial instincts and ambitions of young people. As we argued in our latest All-Party Parliamentary Group report, entrepreneurship education in schools is not currently integrated into the curriculum and England, unlike many other European economies, lacks a specific entrepreneurship education strategy.

On adult skills, one simple shift would be allowing the self-employed to benefit from the same tax breaks for training as employees. While all employer-funded work-related training is tax-deductible, the self-employed can only benefit from tax breaks for training directly related to their current work. This is something we explore further in a forthcoming report with Enterprise Nation, who, relatedly, are looking for volunteer mentors to support the Government’s Help to Grow: Management scheme.

In the book Thatcher and Sons, Simon Jenkins's convincing thesis is that there was a lot more continuity between Thatcher, Major, Blair and Brown than many of the party faithful would care to admit. However long Sunak remains in power (well, perhaps not if it’s just 38 days), he has the opportunity to leave a lasting legacy. He’ll need to be a lot more ambitious than just focusing on education, but our six reports on the topic – and another two on the way – prove there are policy ideas ready and waiting for him.

The Time is Now
We’re an open network. If you’re an entrepreneur or passionate about supporting entrepreneurs you can get involved in our work.

To keep the network open we don’t push people too hard to give us money. This is both because we don't like asking for money, but it would also backfire as without our dynamic network of over 10,000 entrepreneurs we would lose out on key insights and our authority would be diminished. When we advise politicians and special advisers of a policy change they are much more receptive when we're being backed by entrepreneurs saying the same thing.

Having done this for around eight years, I think it’s fair to say that we are the UK’s leading think tank for entrepreneurs. Time and again, our research has led to policy changes that at the margin have made the UK better for entrepreneurs. I’ll still be doing this in eight years.

All this is a preamble to ask for one of four things:

1. If you’re an individual who appreciates our work and comes to our events, consider signing up as a Supporter or Adviser.

2. If you or your company has the capacity to sponsor research or host our events, then get in touch with me so we can see if there is any crossover.

3. If you know of anyone else who you think I should chat to about either of the above, then feel free to make an introduction.

4. If you are already a Supporter, Adviser or sponsor, please ignore this (and thank you)!

Not Rocket Science

New week; new Prime Minister. This time it’s Rishi Sunak’s turn.

Back in February I wrote here about Sunak’s Mais Lecture: Capital. People. Ideas. I was cautiously optimistic about his priorities then, and as Eamonn Ives, our head of research argues in an article this week, perhaps we can afford a note of optimism that he wants to “make Britain a science and technology superpower”. To achieve this he vowed, among other things, to increase the amount of lab space available, ensure we have access to the best talent, and improve and speed up the research grant process.

We have solutions for all three.

Becoming a science superpower will be impossible without adequate lab space. As reported in FT Sifted, a lack of lab space is holding back Britain’s biotech founders. “We are at risk of losing some of these companies to the states or to Europe, if there’s nowhere to actually put them,” explains Jacob Nathan, founder of Epoch Biodesign which recently raised an $11m seed round.

We identified this problem a while ago, with Aria Babu, our head of policy, writing in Strong Foundations on the impact of planning policy on entrepreneurship (which politicians should be read and heed as a clarion call):

“We seriously lack lab space, and analysis of planning data shows there are few plans to build more. To put this scarcity into perspective, according to Savills, London has only 90,000 sq ft of available lab space, while Manchester has 360,000 sq ft available. By contrast, New York has 1.36 million sq ft available. The current trend is for research teams to custom install their own lab space into generic office buildings. But labs often need bespoke design, e.g. higher ceilings to allow for fume hoods, ventilation systems, or an unusual layout of corridors. For example, ‘dirty corridors’ between labs mean that researchers do not need to ‘gown-up’ and ‘gown-down’ as they do when they’re working out of a traditional office building.”

When it comes to ensuring we have the talent to be a science superpower, we have an idea that is as close as you get to a silver bullet: expand the High Potential Individual (HPI) visa. With Immigration hawk Suella Braverman back in the Home Office, any calls for reforms to immigration are going to have to be carefully crafted. As such, now is the time to push through this hyper-targeted liberalisation to ensure entrepreneurs can access the talent they’re crying out for and the best scientists in the world can move here with ease. I’m quietly optimistic. After all, Sunak’s a fan of quoting our finding that half of our fast growing companies have an immigrant founder.

Yesterday we hosted a roundtable with Lord Clement-Jones CBE and some of the UK’s leading AI entrepreneurs. It covered a lot of ground, including the challenges of grant funding. One thing was clear – bureaucracy and delays are hindering our best entrepreneurs. The same goes for R&D Tax Credits.

As set out in the Way of the Future, we need novel funding mechanisms and a bigger appetite for risk and experimentation. Speeding up the delivery of funds is about putting more resources into fighting fraud. The relative cost is minuscule compared to the at least £132m burden being foisted on businesses by delays.

Sunak won’t have a lot of time before the election, but if he gets his priorities right, win or lose, he could leave a lasting legacy.

Import of Exporting
I’ve never been convinced by many of the policy ideas put forward over the years on how to support exporting. In part, this is because they're usually framed in mercantilist terms, despite Adam Smith teaching us otherwise, and in part because they’re weak on academic or real-world evidence.

But there may be room for high-quality interventions. After all, companies that export are typically more productive than those that don’t – around 20% more – and the academic evidence suggests this isn’t just because more productive firms are more likely to be exporters. Exporting makes firms more productive.

So where should the government focus its limited resources? Our friends at the Enterprise Research Centre shed a bit more light on this, recently putting out a report showing that the benefits of innovation support measures to stimulate exporting are greatest for firms that already have a technological advantage in the UK: “This suggests that identifying companies which are domestic market leaders but not exporting and targeting these firms for export support may create the greatest productivity improvements through greater and faster returns on their innovations.”

This may not matter as much when looking at exporting into less developed markets, where less radical innovations can still be novel. Something that’s particularly relevant given Conservative governments’ post-Brexit trade strategy and a Brexit-voting Prime Minister.

The report also finds that smaller firms may be in a better position to translate lessons from export markets into innovations, or at least benefit more from those lessons, and that export promotion policies would be most cost-effective if they encourage sustained engagements with export markets.

We’re looking to inject some economically sound ideas into this policy area, working with Enterprise Nation as part of our Access All Areas project. To that end, on Wednesday lunchtime we will host a virtual roundtable on this topic. If you have views about exporting, it would be great if you could join us (we may even use you as a case study in the report).

How will Labour's Fair Pay Agreements affect Entrepreneurs?

In all the excitement of Liz Truss resigning and the starting pistol being fired for yet another race to become Prime Minister, many people have overlooked a speech by Keir Starmer in which he set out some substantive policies. Speaking to the Trades Union Congress on 20th October, Starmer committed to a series of labour market reforms. These include banning zero-hour contracts, extending parental leave, strengthening entitlements for flexible working, creating stronger protections for pregnant women, creating a single “worker” status for all but the most obviously self-employed, getting rid of one-sided flexibility, creating statutory sick pay for all, repealing 2016 restrictions on unions, and enforcing mandatory reporting on ethnicity pay gaps.

It’s a long list, and many of the ideas will be unsurprising. They’re the sort of things that Labour leaders often promise. But Starmer also committed to a new and radical idea, to create sector-specific “Fair Pay Agreements” (FPAs). As Starmer explains, FPAs would entail unions and industry representatives getting round the table to negotiate industry-specific minimum wages and minimum worker entitlements, which would then be applied to the rest of the sector – regardless of whether the sector’s other workers were represented by those unions at the negotiating table, and regardless of whether the sector’s other employers were represented by the industry bodies that took part.

The implications of such a policy, as you can imagine, are profound. If applied across all industries, they would empower both unions and industry bodies to set the terms for all workers and firms in an industry. If it passes, we might expect the membership of industry bodies to grow, in order for businesses to get any say in the matter. But unions may well dwindle because workers would gain regardless of whether they are actually members. This may or may not be what Labour intends, but many on the left have long dreamed of the UK becoming more like other European countries, where such agreements are common. Labour is also following New Zealand’s Labour party, which is currently shepherding the same reforms through Parliament.

We don’t yet have all the details from Labour, but New Zealand’s plans for FPAs give us some indication of what to expect. FPA agreements, when made, would become secondary legislation, so that breaches of the agreement would mean breaking the law rather than just a contract. The FPAs would also last for 3-5 years, after which they can be renegotiated. Unions are able to initiate FPA negotiations when they gain the support of either 1,000 employees or 10% of the workforce in a given sector – whichever is lower. And when an agreement cannot be reached, the government can step in to command one. Interestingly, unions would not be allowed to strike to achieve an FPA, but could take industrial action if employers fail to keep to the agreements.

Just as in New Zealand, Labour’s first target for FPAs is the social care sector, in which half a million workers are paid less than £10 an hour. But where it may get more troublesome is in how it gets applied beyond that. The plan for New Zealand is for FPAs to cover either occupations or industries, with overlaps defaulting to whichever provides the best coverage. But if the proposals are taken beyond social care, we can probably expect a lot of legal disputes down the line as to how industries or sectors are defined. 

And Labour should take into account how larger firms may use the process to hurt their smaller, newer competitors. It is not uncommon for small start ups, without much money now, to offer their employees equity or a particularly flexible or dynamic work culture to offset lower wages today. It’s already challenging enough for entrepreneurs to come up against large incumbent firms, but if those large firms have a seat at the table and their competitors (or potential competitors) do not, there’s a very big risk that larger firms able to swallow much higher labour costs may use FPAs to bury the firms that are less able to do so. This anticompetitive process – of big businesses pushing for higher and more costly regulations to benefit themselves – may ultimately benefit big businesses and hurt workers’ bargaining position in the long run. So Labour should pay close attention to how it designs FPAs in order to prevent it, or find ways to offset it. Otherwise, an economy dominated by big business will not lead to the dynamism, growth, and rising opportunities for employment that Labour envisions.

Every Cloud

It would be easy to stick the boot in. After all, even her strongest backers have turned against her. But while Liz Truss’s mistakes and shortcomings are clear and present, there are two things from her briefest of times leading the country (well, sort of) that her successor should keep.

First, Truss was right to focus on growth. We live incredibly privileged lives compared to previous generations, with entrepreneurial endeavours taking humanity from subsistence to relative affluence. I want to stay on this ride, raising the long-term living standards of the current, next, and future generations. And I think you should too.

Obviously all past and future Prime Ministers will say they want growth. But most have and will fail to prioritise it. Who knows if Truss would have been true to her ‘three words’, and while the concoction of unfunded tax breaks, spending commitments and unconvincing promised cuts clearly weren’t the right choice to get there, this doesn’t mean we should give up on growth.

I’m optimistic about the future though. With the advent of Progress Studies – which is investigating “the combination of economic, technological, scientific, cultural, and organisational advancement that has transformed our lives and raised standards of living over the past couple of centuries” – we have a growing intellectual base on which to build the right policies. Whoever comes next may want to pick a synonym for growth, given the short-term damage done to it, but the underlying intention is correct.

Second, the disastrous Mini Budget did nevertheless contain some good ideas. I’m not talking about the headline announcements that spooked the markets and have already been rolled back on, but the micro changes that a broad coalition of organisations, including ourselves, campaigned for. I’m talking about the increase in Seed Enterprise Investment Scheme, reforms to employee options and reforming the pensions regulatory charge cap. These are uncontroversial ideas that any pro-entrepreneurship government should back.

Fair Pay to You
You may have missed it, but Keir Starmer gave a big speech to the Trades Union Congress this week. In it he committed to a series of labour market reforms entrepreneurs should be aware of, including banning zero-hour contracts, extending parental leave, strengthening entitlements for flexible working, creating stronger protections for pregnant women, creating a single “worker” status for all but the most obviously self-employed, getting rid of one-sided flexibility, creating statutory sick pay for all, repealing 2016 restrictions on unions, and enforcing mandatory reporting on ethnicity pay gaps.

Starmer has also promised to create sector-specific “Fair Pay Agreements” (FPAs). As Anton Howes, our Head of Innovation, writes: “FPAs would entail unions and industry representatives getting round the table to negotiate industry-specific minimum wages and minimum worker entitlements, which would then be applied to the rest of the sector – regardless of whether the sector’s other workers were represented by those unions at the negotiating table, and regardless of whether the sector’s other employers were represented by the industry bodies that took part.”

The devil will be in the detail, but as Anton argues: “there’s a very big risk that larger firms able to swallow much higher labour costs may use FPAs to bury the firms that are less able to do so. This anticompetitive process – of big businesses pushing for higher and more costly regulations to benefit themselves – may ultimately benefit big businesses and hurt workers’ bargaining position in the long run.”

£132m+ Problem
Anton has also written about the shocking state of R&D tax credits. It’s an issue we’re increasingly hearing from entrepreneurs. Approval windows have increased from 28 up to 40 days, and tax credit payments are painfully slow, creating major cashflow problems for startups.

Many businesses are having to take out loans using the expected credit as security. Based on the interest rates, Anton has done the sums:

“For 2020-21, HMRC paid out £6.6bn in R&D tax relief support, so we are looking at a total market for R&D tax credit loans of about £5.28bn (80% of that figure). The loans themselves often vary in duration, but typically charge a loan facility fee of about 2.5-3% followed by an interest rate of 1.25% per month. Given this monthly interest rate, and generously assuming that total delays have averaged only an extra two months, the total cost to UK startups and small businesses is in the order of £132m – and probably higher, especially if they have been forced by delays to take out new loans to tide them over, incurring more rounds of loan facility fees.”

This is a very conservative (with a small ‘c’) estimate. It’s time for a Conservative (with a big ‘C’) to sort this out.

The Cost of R&D Tax Credit Delays

All is not well in the world of business. Forget the headlines about a new Chancellor, or even the U-turns on Corporation Tax. One of the biggest problems for many of the most innovative UK startups has been a dramatic increase in delays receiving their R&D tax credit payments.

Since July 2020, HMRC has been looking a lot more closely into the merits of R&D spending claims. Although their aims are laudable – to fight fraud and save taxpayer money – civil servants have been spending a lot more time checking the applications of all businesses, both bad and good. The approval windows have increased from 28 up to 40 days, which is already a major problem. But it’s actually even worse than that, as even when approvals are given, HMRC has been painfully slow at actually issuing the tax credit payments.

This has created major cashflow problems for startups, sometimes even forcing layoffs. After a company’s financial year has been completed, it can submit an application to HMRC for a R&D tax credits. These then typically took 28 days to process, with the payment made within just a few weeks. From spending on R&D to receiving the tax credit payments can thus take over a year.

But even the smallest delays can be critical for startups, because many of them take out loans using the expected credit as their security, in order to help their cash flow. As such, both HMRC’s own processing delays, along with post-processing delays in receiving payments from HMRC – some reportedly delayed for up to five months – create a very real cost to businesses in terms of the interest payments they must continue to pay for their loans. And in cases where HMRC decides not to pay out the full amount being claimed – often with minimal warning or communication – it can be game over for a startup.

What is the cost of these delays to startups? We can estimate this with a quick back-of-the-envelope calculation by taking the typical interest rate offered on R&D tax credit loans, and treating this as a proportion of about 80% of the total amount awarded in R&D tax credit payments each year – roughly the amount that most R&D tax credit loan providers seem to be willing to give. Not all startups will actually take out the loans of course, but the market interest rate tells us the opportunity cost faced by all startups who partake in the scheme. Just because they don’t always actually take out the loan, doesn’t mean they don’t also suffer costs from the same lack of cash flow.

For 2020-21, HMRC paid out £6.6bn in R&D tax relief support, so we are looking at a total market for R&D tax credit loans of about £5.28bn (80% of that figure). The loans themselves often vary in duration, but typically charge a loan facility fee of about 2.5-3% followed by an interest rate of 1.25% per month. Given this monthly interest rate, and generously assuming that total delays have averaged only an extra two months, the total cost to UK startups and small businesses is in the order of £132m – and probably higher, especially if they have been forced by delays to take out new loans to tide them over, incurring more rounds of loan facility fees.

Tomorrow the World

I won’t be writing on today’s events. Between hitting send and it landing in your inboxes there’s every chance the Government will have u-turned yet again. But as luck would have it, I can distract you from it all with a new report we released this week in the House of Lords: Tomorrow’s Entrepreneurs.

It’s in partnership with Youth Business International (YBI), a global network of expert organisations in over 40 countries supporting young people to turn their ideas into successful businesses, creating jobs and strengthening communities.

The report is built around polling of young entrepreneurs (under 35) and not-so-young entrepreneurs (35+). We find that young entrepreneurs are twice as likely to say their business’s primary aim is to solve a social or environmental problem (39% to 18%), as well as caring more about things like the ethics of the ​​suppliers, diversity, and ​​helping employees live fulfilling lives outside of work.

Crucially, we found that trying to solve environmental or social problems was not incompatible with pursuing growth. In fact, according to our polling, the more a business turns over the more likely they are to agree that their business’s primary aim was to tackle a social or environmental problem, with close to half (47%) of entrepreneurs turning over £1m+ each year agreeing.

Unfortunately our report shows that access to entrepreneurship isn’t universal. Young entrepreneurs are more likely than older entrepreneurs to come from a privileged background. They are more than three times as likely to have attended a private school compared to the general public (20% vs 6.5%), more likely to say they had help through personal connections to get their business running than older entrepreneurs (45% vs 38%), more likely to have successfully raised finance than older entrepreneurs (43% vs 31%), and less likely to have attended a comprehensive school than older entrepreneurs (49% vs 63%).

There are a lot of policy levers that need pulling to fix this, but we focus on three. First, we want to bring back the Enterprise Allowance. Not the half-baked New Enterprise Allowance that was recently scrapped, but the full-throttled policy devised by Lord Young under Margaret Thatcher, which properly helped unemployed people who set up their own business.

Second, we want better support systems for young entrepreneurs to help them make connections: providing them with information about how to set up and run a business, linking them up with mentors, and ensuring they have opportunities to network with people who could support their businesses, especially potential investors. This may sound trite, but it’s no less important.

In practice, this means working with the grain of successful interventions that are taking place in the private and charitable sectors. Too often the Government intervenes, disrupting and crowding out established support, before pulling out with a new Minister or Government joins who wants a headline or two – or some spending cuts.

Third, we want the broader use of Challenge Prizes and Advanced Market Commitments to give young people, who are trying to innovate solutions to big problems, more certainty that their work will become profitable and attract more investors to pro-social companies. This is something we were calling for to fight Covid, with great success, but it could and should be applied to more of the world’s biggest problems.

It would be great to chat with anyone who wants to help us take any of these (or other) ideas forward. You’ll see that this report sits nicely into our large and growing body of work on supporting young people. We’re also keen to look at how we can support older entrepreneurs, of course.

(For those of you who are not just sick of politics, but policy too, the report also uncovers six entrepreneurial tribes: Mission-Driven Founders, Industrious Entrepreneurs, Modern Artisans, Established Founders, Independent Entrepreneurs, and Socially-Conscious Solopreneurs – take a look to see which sounds most like you.)

Give Growth a Chance
Whatever happens over the next few years, month, days or minutes – let’s not give up on growth. To this end, check out the latest edition of Works in Progress for thoughts on getting energy that is so abundant that it’s almost free, the risks of not taking risks, finding out from J. Storrs Hall where your flying car is, and much else besides.

Sign up to me Friday newsletter here.

Do You Even LIFTS?

“I love people who take responsibility, start their own businesses and invest.” So claimed the Prime Minister in her speech at Conservative Party Conference.

Over the next two years (assuming she makes it), we will see whether she makes good on this and other claims. Although the opinion polls suggest that people already have pretty strong opinions on her and the Conservatives, now is the time to engage – even for those who want a change of government. Since I started working in think tanks, I can’t remember a better opportunity to make an impact on policy.

Any new government wants to get things done. But one with such a short potential ‘use by’ date will inevitably be in a big rush – particularly with a possible recession looming. I also think there is something unique in Truss’s openness to new ideas. This is partly the result of her not having had years in opposition to plan her agenda in detail, but also because from what little I have gleaned from the times I’ve met her, she doesn’t seem the sort to pass up the opportunity to make radical changes.

Of course, being radical isn’t inherently good. From my perspective, the Home Secretary Suella Braverman sounds pretty radical in a bad way by objecting to increasing visas for Indians as part of the trade deal. I wouldn’t worry too much though. Downing Street will likely rebuke her, as they did with her call for the UK to leave the European Convention on Human Rights: “As Suella acknowledged, her personal views are contrary to government policy and if she wishes to make those views known within government she should do so in a more appropriate setting.” And pleasingly, the FT carried reports this week on Truss's plans to make it easier and cheaper for businesses to make intra-company transfers.

But being radical isn’t inherently bad either. Sometimes things need to change, and talking to ministers, MPs and special advisers, they’re genuinely on the hunt for more ideas. Obviously Truss will be most receptive to ideas that are within her ideological worldview, but I don’t think this is as narrow as many assume. For example, the Government’s decision to widen the Seed Enterprise Investment Scheme (SEIS) and Startup Loans, and introduce the Long-term Investment in Technology and Science (LIFTS), suggest they are open to more than just tax cuts and deregulation.

Remember, it was Margaret Thatcher who created the Enterprise Allowance Scheme – a guaranteed income for unemployed people to set up their own business, without which the world would be bereft of Creation Records, Superdry, Tracey Emin and Viz magazine. Sometimes only Nixon can go to China.

A decent chunk of our policy papers are inspired by entrepreneurs and those that support them. We’re still promoting our ideas that haven’t yet to be adopted, but we’re always on the lookout for more areas to investigate. And if this Government doesn't want them, then they’ll be ready and waiting for the next one.

So what are your big ideas? What are your small ideas? What are the good ideas you’ve read? What is holding you back as an entrepreneur, that you don’t know how to solve? Let me know.

Big LIFTS?
The mini-Budget announced the Long-term Investment in Technology and Science (LIFTS) initiative, providing up to £500 million to support new funds designed to catalyse investment from pensions schemes and other investors into the UK’s pioneering science and technology businesses.

To update you on this, the British Business Bank and the Office for Investment are now leading some market engagement on the scheme. If you have developed thoughts on this please get in touch. After the engagement, the Government will then launch a call for proposals. And then, once selected, the new LIFTS vehicle(s) will receive the relevant government support and raise funds before beginning to invest.

Labour the Point

After last week’s not-so-mini-Budget Aria Babu has written for City AM on what was welcome but crucially what the Government needs to do next, while Eamonn Ives has a piece in CapX on why a revamped immigration system is vital to Truss’s growth plan. However, this week it would be remiss of me if I didn’t turn attention to His Majesty's Most Loyal Opposition.

After all, Labour had its Party Conference this week in Liverpool with Keir Starmer and the rest of the Labour front bench keen to position the Party as pro-business, making the case for why his is the party to “unleash” Britain’s “entrepreneurial spirit”. According to Starmer:

“Business leaders aren’t knocking on my door saying they want to rip up employee rights. They don’t tell me the problems they face will be solved by corporation tax cuts. They want fair taxes, high skills and the long-term confidence to invest.

“I want to be crystal clear about this: I’m not just pro-business, I want to partner with business. So we will scrap business rates, level the playing-field for start-ups and the high street, give employers new flexibility to invest in the world class training they need.

“And, as Jonny Reynolds said yesterday, invite them to drive forward our modern industrial strategy: a true partnership between government, business and trade unions.

“This isn’t about the size of government – it’s about what government can do. Government can support businesses to innovate and grow. Can bring in the creative genius of our scientists and universities. Can unite us to tackle the country’s challenges on behalf of working people.”

As is normal, the Jonny Reynolds speech Starmer is referring to doesn’t add a lot of meat to the bones, while Lucy Powell’s speech as Shadow Secretary of State for Digital, Culture, Media and Sport mostly serves to show how incongruous it is that digital policy sits alongside culture, media and sport in the same department. Obviously this isn’t Powell’s fault, but whoever wins the next election should really bring digital into the business department.

There is a little more policy detail in their Industrial Strategy, which is quite high-level and mostly unobjectionable. It mentions advance market commitments, which is something we've been making the case for. However, calls to level the playing field for the high street should also be treated with caution. Support for high streets is laudable, but punishing online services is not. We shouldn’t be penalising businesses for investing in the latest technologies, or for being able to scale.

Last week I argued that Truss will need to push through major reforms to have any hope of returning the country to 2.5% growth. For its part, Labour will need some bolder policies to get the ‘entrepreneurs vote’. At least in his speech Starmer mentions the triumvirate of areas requiring reforms I pointed to last week – house-building (I would add office and lab space as well), childcare costs, and immigration reform.

We’ve fed into Labour’s Startup Review and we’ll be hosting roundtable discussions in the next few months to build on this. With Tulip Siddiq we’ll explore ‘how to encourage more growing UK firms to reach the highest growth stage’, and, on the back of our Female Founders Forum work, we’ll discuss ‘how to ensure more women can successfully start and grow businesses’ with Anneliese Dodds, Shadow Secretary of State for Women and Equalities.

We’ll be inviting our Advisers and others who have informed our thinking in these areas, but let me know if you’re particularly keen on influencing Labour.

All Change
As reported in Politico, Eamonn Ives has joined The Entrepreneurs Network as our new Head of Research: “It’s a return to wonk-land for the COP26 aide, who previously headed up energy and environment work at the Centre for Policy Studies.” In 2020, Eamonn wrote our influential Green Entrepreneurship report, many of the policies of which were later adopted by the Government.

In addition, Aria Babu has been promoted from Senior Researcher to a new role: Head of Policy. As discussed here last week, now feels like a real crunch time in terms of getting good ideas into government and the opposition. It’s pleasing that we’ve got such a strong team to make the case for the policies we’ve been designing and championing – as well as coming up with some more.

"Mini" Budget

Today’s not-so-mini-Budget is a bet on economic growth. The scrapping of the planned increase in Corporation Tax and cutting of National Insurance and Income Tax will of course be broadly welcomed by businesses, but there’s quite a lot behind the headlines that should please entrepreneurs.

For example, from April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, the gross asset limit will be increased to £350,000, the age limit from 2 to 3 years, and the annual investor limit will be doubled to £200,000. This is something that we’ve been campaigning on for years – most recently in our Tech Startup Manifesto with Coadec. The government also hinted that they will extend the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT).

The government is also doubling the current limit to allow qualifying companies to issue up to £60,000 of CSOP options to employees, making the Annual Investment Allowance permanent and reforming the pensions regulatory charge cap. It’s a bit cringe when think tanks claim all the credit for policy changes, but at the very least I think it’s fair to say we’ve been in the vanguard of organisations pushing for these reforms.

The repeal of IR35 was huge news for those caught up in its web, and enterprise zones could be a big deal if they can offer something more than displacing economic activity. The Long-term Investment for Technology & Science (LIFTS) competition, which aims to “provide up to £500 million to support new funds designed by institutional investors and world-class fund managers” sounds intriguing (incidentally, we’ll be chatting to the British Business Bank about this policy, so let me know if you have any thoughts on how it can identify promising fund structures and vehicles).

While there’s a lot more to digest, these reforms alone aren’t enough to deliver the much-vaunted 2.5% growth. The Chancellor recognises this, but I’ll take this opportunity to remind him of three that we’ve identified as structurally critical.

First, as detailed in Strong Foundations, beyond the intergenerational scandal of only the wealthiest being able to get on the property ladder (nay, gilded escalator), the cost of housing and offices is holding back innovation by setting a limit on agglomeration. The Plan for Growth acknowledges that “further reform is needed”, but it’s impossible to understate how important this policy area is. It’s why we keep banging on about it.

Second, as we’ve said in multiple reports for the Female Founders Forum (FFF), the cost of childcare is locking mothers out of the workforce. Aria Babu has been a big campaigner on this – as were her predecessors Sophie Jarvis and Annabel Denham. Have a read of what Aria said to the Work and Pensions Committee for the most concise arguments we’ve been making. When she was Children’s Minister, Truss pushed for some of the policies we back, but she was blocked by people more senior than her in the coalition government. Today the Government says it “will bring forward reforms to improve access to affordable, flexible childcare.” Watch this space.

Third, we need to make the visa system work. While I could write for Britain (or any country) about all the necessary reforms, I’ll focus on the one that will make the biggest impact on growth. In True Potential we set out how to reform the newish High Potential Individual (HPI) visa so that we don’t miss out on the world’s smartest graduates. The Government should copy our formula, allowing graduates from approximately 100 universities spanning 13 different countries to access this innovative visa. Again, the Chancellor claims that “the government is committed to ensuring the immigration system works for business and encourages highly skilled people and high growth businesses to choose to locate and invest in the UK.” But is it committed enough?

We’ve heard this from too many previous governments – for 12 years it’s been from Conservatives. Talk is cheap, but any more of it without some action will come at a huge cost to the UK.

Hot Iron
This Government is actively looking for supply-side reforms and additional pro-growth measures like regulatory reforms and cuts – and they want them quickly. We will be feeding in our ideas that haven’t already been taken up (and those of others we wish we had come up with), but we’re always willing to hear more.

I can’t promise we’ll run with it, but we will take any suggestions you make seriously. Even if you think it’s too minor or niche to your industry to be worth suggesting, now is the time to share your thoughts. I look forward to hearing from you.

Why Not Both?

We’ll have a new Prime Minister next week. It’s looking like Liz Truss has it sewn up. She’s been very supportive of The Entrepreneurs Network over the years, speaking at lots of events, inviting us in to discuss ideas, and writing the foreword for our Resilience & Recovery and Here & Now reports.

On the face of it, it’s an unenviable time to become Prime Minister, with biting inflation, the cost of living crisis, a looming recession, and only two years until an election. But all political reigns come with mammoth tests. It just happens that this time – unlike with Covid or the financial crisis – we already know what’s on the horizon.

The new Prime Minister will be necessarily focused on the short term, but I think some commentators are overplaying the need to have every idea show fruition before the election. In the words of the Old El Paso advert turned meme: why not both?

Consider an issue like the visa system, which my colleague Aria Babu co-wrote on for City AM this week with Coadec's Frances Lasok, drawing on a section of our recent Tech Startup Manifesto. There is low-hanging fruit which, if implemented, could deliver results before the next election.

Currently the Home Office makes an 800% profit on some applications, which is absurd. Some have argued that it’s good to see the government making money on them. But this would only make sense if these people were an economic burden to the UK (they are not), or if there was no competition from other countries for talent (there is).

The article also recommends opening up the High Potential Individual visa beyond the current “top university” rankings, which aren’t getting at what we want. As Aria and Frances write: “A better ranking would look at the human capital of graduates, which you can calculate using graduate earnings. If the visa was reformed in this way it would include more specialist STEM institutions, small but elite American Liberal Arts Colleges, and top business schools.” Perhaps most importantly, it would open up the UK to India’s IIT’s, many of whose alumni have built and increasingly run Silicon Valley.

Luckily for the government, we have done the hard work of producing the criteria for a better ranking that would allow graduates from approximately 100 universities spanning 13 different countries to access the visa. This would have a slower effect than reducing the fees, but would still have an impact before the next election.

In an earlier paper, we called for the UK government to proactively identify and persuade leading scientists and innovators to settle in the UK. This idea may sound kind of wacky, but it’s something we do on a small scale through the Global Entrepreneur Programme (GEP), and something we did on a larger scale historically. This policy isn’t going to pay off in anything like two years, but we should still do it.

Many future crises could have been mitigated with proper planning. Whether that’s pandemic risk, which we’re still being incredibly blasé about, or the energy crisis – watch and weep as Nick Clegg ​opposes nuclear power in 2010 because it would only come on-stream by 2021 or 2022.

And even if some long-term policies aren’t yet bearing fruit, the act of genuinely tackling long-term challenges won’t be lost on people. After all, we humans literally (and metaphorically) plant trees knowing we’ll never sit in their shade. A government doing the same would be recognised as such.

Investment Culture
The Tech Sector team in the Department for Digital, Culture and Media and Sport (DCMS) has asked us to ask you to share the challenges you face – particularly when raising investment. If you would like to help inform their policy and communications strategy, please fill out this short Google form.

The survey aims to gather Insights into what further support founders need to scale their businesses, how the regional equity financing gap could be decreased, and insights about diversity within the sector.

Please provide responses by the 14th of September. If you would like a discussion, DCMS will be setting up feedback calls. You can get in touch with them about this by dropping them an email.

SME Productivity Call for Evidence
We’ve extended the deadline for the SME Productivity Call for Evidence briefing paper until next week. We’ve had some great responses, but a few people have asked for a few more days, so it’s only fair to open this up more widely. You can read the questions here. There is no expectation that you answer all the questions – short responses focused on specific issues are often the most useful.

Fermenting Female Ambition
We are hosting a Female Founders Forum roundtable on Wednesday. We will be talking about the barriers that the UK’s most ambitious female founders face and what can be done to help them out. If you’re a female entrepreneur, trying to build a billion-dollar company, get in touch with Aria.

Tech Startup Manifesto 2022

Yesterday we released a new report: Tech Startup Manifesto 2022.

To save the incoming Prime Minister the trouble of rereading all our reports, we’ve put together a pithy paper with our friends at Coadec to explain what tech startups will need in order to flourish.

Many of the policies will be familiar to regular readers. It covers access to capital, access to talent, start-up friendly regulation, and fostering innovation. You can read the detailed list here, which includes policies like reforming the pension charge cap, opening up the public sector to startups, and experimenting with funding mechanisms.

The key ambition for this report is to explain what the next Prime Minister should prioritise specifically for tech startups. To be clear, it isn’t a manifesto for every business type, size and stage. Nor is it exhaustive. But we think that these policies will be critical for supporting tech startups.

Dom Hallas and I have written about the report in CapX, to cover some of the key policies. And I want to draw attention to one area of the article and report where we are calling for more of the same: the UK must continue its consistent and stout defence of the value of digital free trade, as reflected in the recent Singapore Digital Economy Agreement:

“This matters when across the world we’re seeing a wave of digital protectionism, often couched in the language of ‘digital sovereignty’. Whether it’s in Europe via the French Cloud Doctrine, or new digital localisation requirements in emerging economies such as Nigeria and Vietnam, a leading global tech market leader such as the UK has much to lose in exports from a swing towards more closed digital markets.”

Crossing the Floor
Following our submission to Labour’s Startup Review, we’re in discussions about hosting a few roundtables with the panel. These may cover lots of different areas, including supporting scaling of private businesses to the highest level (including listing), and issues around diversity.

Please let us know if these interest you. We’re particularly keen to hear from entrepreneurs and experts who have insights on what the government can do to help scale businesses to the utmost.

Was Nice Dumitriu
Our Research Director, Sam Dumitriu, is leaving The Entrepreneurs Network. The quality of the research under his leadership is testament to his talent. Just check out his reports on elite immigrant founders with Amelia Stewart, drones with Anton Howes, and most recently on reforming the High Potential Individual visa with Jason Sockin. Read more of his greatest hits here.

Everyone who has worked for us has gone on to achieve more incredible things. Watch this space for announcements on what he’s up to next, and keep in touch with Sam by following him on Twitter, subscribing to his Substack and connecting with him on LinkedIn.

We all wish him the very best.

An Urgent Call for Entrepreneurship Education

A society that fails to harness the energy and creativity of the next generation risks being left behind. If we want to unlock entrepreneurial potential and cultivate an entrepreneurial mindset amongst young people we have to start in the classroom.  

It’s time we reshaped the education system to connect young people with the world of work. Integrating entrepreneurship education into the curriculum will equip people with digital literacy and general business acumen, and give them valuable life skills such as confidence, communication and problem-solving. 

Entrepreneurship should be open and accessible to everyone. Young people are held back by little or no access to mentors, networks and funding.  According to The Entrepreneurs Network, over half of young people in the UK have thought about starting (or already have started) a business, yet 70% cite ‘not knowing where to start’ as why they don’t follow through. 

Exposure to entrepreneurship is a key driver of entrepreneurial intention. Young people who have thought about starting or started a company are more likely to have a family member or friend who is a business owner, and seven in ten say that having a family member or friend who is an entrepreneur has made them more likely to consider starting a business.

We need to map out a pathway today for a fairer, more equitable tomorrow for young entrepreneurs of all backgrounds – and an inclusive economy that advances growth and prosperity for all. This is critical to driving positive change and meeting the UK’s social mobility challenge. 

I’m proud to have joined forces with the All Party-Parliamentary Group (APPG) for Entrepreneurship to call on the Government to integrate enterprise education into the school curriculum. In our recent Entrepreneurship Education report, we highlight the urgent need for greater clarity from the Government. We want to know under whose portfolio responsibility for enterprise education falls. And we want resources and funding for pupils to engage with entrepreneurial activity in schools and incentives for businesses and local enterprise partnerships to support and engage with this entrepreneurship education. 

This report is the culmination of many months speaking to academics, education experts, youth enterprise organisations and business leaders. The concept of entrepreneurship education is extremely important to me, and I’m hugely encouraged by the worlds of business and education coming together to help drive greater opportunities for young people. 

Our education system is responsible for preparing young people to build successful lives. If ever there was a time to empower the younger generation of entrepreneurs, it is today.  We, as a society, need to ensure that this latent potential is fully realised.  Given the potential that new businesses and start-ups have to boost our economy, it’s critical – as outlined in our report – that “young people are equipped with the toolset to achieve what they increasingly desire: independence and meaningful work.”

Tearing down the barriers that prevent more young people from becoming successful entrepreneurs and creating a pathway for all young people, irrespective of their background, can generate positive outcomes for everyone. I strongly believe early intervention and expanding access to entrepreneurship education to young people in schools is a fundamental part of this. 

It’s no surprise that an entrepreneurial mindset and enterprise skills are also highly valued by employers. Inspiring these skills in the next generation of workers clearly has benefits in terms of dealing with ever-evolving market conditions and the future world of work which looks very different from now. 

But what’s really driving me is the profound impact that entrepreneurship education can have on young people’s lives.  Enterprise skills are ultimately life skills – the ability to think creatively and ambitiously. It’s about engaging with the world around you, to identify challenges and seize opportunities.

I’ve seen first-hand how access to entrepreneurship education has helped young people from different backgrounds thrive. I would urge other business leaders to join me as we look to create a more equitable and inspiring future for the UK’s young people. 

Sam Smith is the CEO of finnCap Group

Chief Entrepreneur

Scotland now has a Chief Entrepreneur. As former COO of Skyscanner, you can’t deny that Mark Logan has the entrepreneurial credentials. The question is: can he make a meaningful difference?

To some extent, he’s already had an impact. His appointment came following his 2020 review of the Scottish technology ecosystem. In it, among other things, he called for the creation of a network of “tech scalers”, which claim to be “best practice in incubation, intensive founder education in Internet Economy best practice, ecosystem social infrastructure, and integrated funding.”

As this illuminating interview in the New Statesman shows, Logan is ambitious for Scotland (in a way that only someone who has built a billion dollar company and not worked in the public sector can be). But he is already struggling with plans to get computing science taught from the 1st year of secondary school with the same emphasis that is put on maths and physics: “We’re getting some stuff done in education, but it’s way too slow. It shouldn’t be this hard. I’m not seeing enough people throwing themselves onto the barbed wire of that task alongside me.”

From the same interview: “I have spent the last two years in this space, and it’s very hard to get things done because there’s no one owner. Let’s say I want to do something on the front line with teachers – there’s Education Scotland, there’s the SQA, there’s local authorities, the unions, the headteachers, and all of those groups together have to basically agree on doing something. Now that has frankly become the big excuse – ‘we’d love to do that, but we have to get those other people convinced’. Education has been, relatively speaking, a more difficult area in which to make progress.”

In The Times, Alex Massie picks up on his challenges and isn’t optimistic about his chances: “I fear that he is in the business of pushing water uphill on behalf of bosses who do not much care if he makes it to the top.” For Massie: “The problem is large because it is, at heart, one of culture. In general, this is not a dynamic country; it is certainly not one in which business success is esteemed.”

So can Logan, or anyone, impact culture, making Scotland more entrepreneurial?

Culture obviously changes. Even the language of “startups”, “scaleups” and “ecosystems” is relatively new. Ultimately, the success of Silicon Valley has allowed it to export its culture to the rest of the world, with each place giving it their own local twist.

Things have moved on, but I wonder if there’s a new way we could impact culture. For example, Ned Donavan and Anton Howes made the case for establishing a new order of chivalry, specifically designed to encourage invention and raise the status of being an innovator in the eyes of the public. Separately, Anton has also called for the creation of a new Great Exhibition. Any other ideas (genuine question)?

Another way of looking at the problem is through the institutions of government. Logan mentions Estonia as a “tiny country that’s producing a lot of unicorns”, who “have done exactly what I’m prescribing.” I’ve written before about what Whitehall can learn from Estonia, but the most fundamental lesson from Estonia is that a flourishing entrepreneurial ecosystem can be built from scratch.

In a way, starting from scratch, after the wreckage of Soviet occupation, was to Estonia’s advantage. As Logan’s diagnosis of Scotland’s sclerotic education system shows, a long-standing bureaucracy makes reform hard-going (to put it mildly). The same is true for England, which our numerous reports are testament to.

As an aside, one reason ARIA has such potential is because it’s specifically designed to be at a distance from bureaucracy. It’s also why we think (like Dominic Cummings, but don’t let that put you off) that it should fund Focused Research Organisations (FROs), which are low on bureaucracy because they are fully funded with a time-limited mandate.

Into Focus

When I started The Entrepreneurs Network back in 2013, I thought I had a pretty good sense about the scope of our work. We would focus on the nuts and bolts of policies to support entrepreneurs, advising on things like how the tax system can best incentive people to start and grow businesses, and identifying regulations that are holding back businesses. And yes, there is plenty of that, but our scope has widened much more than I could have imagined.

Take our latest report, which we produced with the Tony Blair Institute and Convergent Research. A New Model for Science makes the case for Focused Research Organisations (FROs) to tackle some of the world’s biggest challenges.

I first came across FROs in an excellent Nature article in January. FROs are designed to fill a gap in the market, solving problems too big for a single academic lab to take on, too complex for a loose, multi-lab collaboration to solve, and not directly profitable enough for a venture-backed startup or industrial R&D project to fund.

Though nonprofits, FROs are entrepreneurial, being run by full-time technical founders who oversee 10-30 employees. They pursue specific, quantifiable technical milestones for a finite-duration (5-7 years). And as they near completion, they translate what they have built into longer-lived nonprofits or venture-backed startup spinouts.

Because these are bigger undertakings than most academic labs handle, and are focused on a very tangible, focused goal, entrepreneurs are as critical a part of FRO founding teams as scientists. As Tom Chivers put it in his first-rate article on our report: “If it’s not profitable, the private sector won’t fund it; if it’s too big and complicated, universities can’t do it.”

Three FROs have been launched so far, all in the United States. E11 Bio is building the key tools needed to map the connections between neurons in a mammalian brain. If successful, it could make new treatments for brain disorders possible. While Boston-based Cultivarium is building an end-to-end toolkit for cultivating currently unculturable microbes. This will accelerate the study and engineering of microorganisms for purposes such as medicine and carbon removal, which will be vital if the world is to keep global temperatures stable.

Milan Cvitkovic of Convergent Research has identified the NHS as offering scope for FROs: “The potential of the NHS for biomedical research is extraordinary and unique to the UK. Its size, centralised approval processes, and consistency in data and standard of care make it possible to run biomedical projects in the UK that could not be run elsewhere.”

The report has the backing of pioneering geneticist George Church, who described FROs as “a timely and much-needed approach with momentum behind it.” And ​​Stian Westlake, CEO of the Royal Statistical Society and former innovation policy adviser to the UK government said: “Organisational innovations like FROs represent a very promising opportunity to refresh our research institutions and accelerate human progress. This report is a very welcome contribution to a rapidly emerging field, and will be valuable to anyone who cares about science and technology policy.”

FROs are a bold new idea. A lot of you, I know, are equally bold. So please reach out to Milan Cvitkovic at Convergent Research if you're interested in founding, funding, or joining an FRO. Or you just want to learn more. (Also, please give our thread a retweet if you're on Twitter.)

People Power
Don’t worry! We’re still doing the nuts and bolts too.

What can we do to ensure small businesses can access the talent they need to scale? Are there cost-effective ways that the government can help businesses get access to better advice from experts? What role can government play in ensuring marginalised groups have access to fellow entrepreneurs, experts and investors to inspire and support them? What are the easiest ways for the government to ensure that the next generation has the right skills to work in start-ups? And what about the role of training courses?

If you have answers to any of these questions, you should join us for our latest Access All Areas virtual roundtable on Tuesday from 11am to 12pm. Just drop our events team an email to register your interest. Your insights will help guide the report and we may want to use you as a case study for the report.

What Reliefs!
The APPG for Entrepreneurship is undertaking a report on tax reliefs for equity investments: specifically SEIS, EIS and VCTs. At rather short notice we’ll be hosting a virtual roundtable on this topic next Friday at 11am to 12pm. If you have expertise on this topic and want to register your interest in attending, get in touch.

Inclusive Innovation Forum: The Diverse Path to Success

Welcome to the second newsletter of the Inclusive Innovation Forum.  The first roundtable of the Inclusive Innovation Forum focused on the discussion of a well-known problem: the funding gap for founders of colour. The conversation gave insights into whether venture capital firms should have quotas to reduce the underinvestment in entrepreneurs of colour.

Check out Morgan Stanley's write-up of the first roundtable here.

The second roundtable looked at operations in companies founded by people of colour. The conversation delved into whether they set companies up differently: what are the pathways to success and what factors determine the route they decide to follow? The Entrepreneurs Network will use the insights of this project to inform its policy work.

Insights from the Roundtable 
Kalkidan Legese, founder of resale marketplace Owni, explained that she lacked exposure to companies designed to scale. When she started her first company, it was with the simplest and most cost-effective model — the basic money in, money out apprach. After spending time in the industry, she decided to approach things differently with her current business. Owni is VC backed and aiming for fast and large scale growth. 

“I see a lot of people, especially in the Black community, running social enterprises and CICs. Sometimes the lack of knowledge pushes you into directions that you do not know, and later you learn what you need to do. At that time, it is not too late, but it takes a lot of work to untangle all of that.” – Alecia Esson, founder of sports wearable startup Nxsteps.

It raised the question of whether the Black community chooses to build social enterprises and community interest companies because they do not know other routes or do not have access to them, or because that is the choice they wanted to make. For Alecia, it is a result of both factors. She believes that many people do not know enough, but also when a person of colour tries to launch a company, the advice they receive is based on underestimation of their skills, ambition, and potential. Others mentioned that the reason a traditional VC funding route is often not considered is lack of networks and the industry’s need for warm introductions.

Although there is a wealth of knowledge and information out there, access to the right information at the right time isn’t always easy:

“There is a huge disparity when it comes to access to knowledge, where to find it, or where to be signposted when it comes to first time entrepreneurs versus people who have done a business before.” – Dama Sathianathan, Partner at Bethnal Green Ventures. 

Some suggested that knowledge should be more practical and critical, particularly for people who do not have an established network. According to Upasna Bhadhal, founder of recruitment firm Career Collective, there should be easy, standard answers to key questions like ‘How do you raise money?’ and ‘What are the different pathways you can take when running a business?’ that everyone can find. When you have no network and are starting your first business, googling these concepts brings up a whole host of resources — many from consultants who want you to pay them to help — and that needs simplifying.

“Networking has an important significance for the ecosystem. Getting insider information is key and having it early in a founder’s journey is important because it is the initial capital raising that makes a huge difference.” – LaToya Wilson, ​​Executive Director at Morgan Stanley. 

Another major topic of conversation was around why VC is considered the pinnacle of success. We discussed whether there are other options that could be better for founders of colour: 

“VC is one route. It is just one option of many. There are huge stories of success from companies that have followed this route because VCs have the loudest voices, and they push that narrative. The other funding routes have smaller voices.” – Esme Verity, founder of Considered Capital.

Additionally, VC is beneficial because it helps to gain credibility for the founder:

“If you have raised any kind of money, you are taken more seriously; if you raise VC money, you are taken even more seriously. It is a repetitive cycle.” – Upasna Bhadhal, founder of Career Collective.

More founders of colour are considering alternative routes because “they don’t have access to VC or they realise that this route is not right for them due to their business models, growth projections, aspirations and lifestyle choices”, says Esme.

But what are the alternative routes? Alongside grants and loans, there are also options such as revenue-based financing, profit-based financing, shared earning agreements and a mixture of a bunch of them.

Sheeza Shah worries that raising venture funding leads founders into a repetitive cycle of pursuing funding, instead of building their company for profit:

“Any financing firm exists to make a profit from a founder continuously needing financing. While financing organisations continue to lean on encouraging founders to be constantly in a fundraising mode, they will not have the time or resources to make those enterprises sustainable.” – Sheeza Shah, cofounder of social impact crowdfunding platform UpEffect.

Dama explained that, in her experience, raising constant rounds of VC is not always necessary when you have the right investors and advisors onboard — Bethnal Green Ventures’ has portfolio companies that haven’t raised again, or raise many years later, as they focus on becoming a profitable and revenue driven business. 

The flipside of this discussion was that founders of colour stay away from being a limited company by shares or from raising venture funding because they don’t believe they can create impact under those models:

“A lot of enterprises are realising that they can be any structure they want if it serves their community. So being a profit limited by shares company does not keep them from doing something good. This is progress because, in the early years, many companies chose CICs or tried to incorporate articles for a third-social mission. This has limited them because it builds barriers to accessing the right kind of financing. Generally, financing options are fairly limited for social enterprises. Over the last five years, a lot of enterprises that are now approaching our organisation are limited by shares because they have realised that this gives them more options.” – Sheeza Shah, cofounder of UpEffect.

Finally, we discussed diversity in teams. It was insightful to hear how differently attendees have approached the topic of hiring: Some have considered diversity a conscious priority — they’ve experienced being overlooked or underestimated and are purposefully ensuring they do not do the same. For others, it hasn’t been a conscious thought. There was a widely accepted belief that coming from underrepresented communities means you are more likely to hire diversely, anyway. However, some of the women founders shared that they have been advised to hire senior white men be more credible to VCs, their market and future hires. 

Thank you to everyone who attended. I’m looking forward to having further conversations on the topic and using these insights to drive policy change. 

Attendees
– Anisah Osman Britton, Reporter at Sifted, Founder at 23 Code Street
– Sanghamitra Karra, Managing Director at Morgan Stanley
– La Toya Wilson, Executive Director at Morgan Stanley
– Eni Timi-Biu, Founder of Create your Table 
– Karan Jain, Chief Executive Officer at NayaOne
– Dama Sathianathan, Partner at Bethnal Green Ventures 
– Kalkidan Legesse, Founder of OWNI

– Esme Verity, Founder of Considered Capital
– Saffron-Lucia Gilbert-Kaluba, Co-Founder of the Corporate Law Journal Limited
– Alecia Esson, Founder of Nxsteps
–Kelly Kalaitzaki, Vice President Lead of the Multicultural Innovation Lab in Europe, the Middle East, and Africa at Morgan Stanley
– James Usmar, Head of Tech Strategy at Department for Digital, Culture, Media and Sport
– Upasna Bhadhal, Founder of Career Collective
– Ruphina Ochanda, Department for Digital, Culture, Media and Sport
– Sheeza Shah, Co-Founder of UpEffect

Labouring the Point

Penny’s dropped. So no new ‘theme tune’ for the UK. But after weeks of writing about the blue team, this week I’ll cross the floor.

Labour has published the Call for Evidence for its Start-Up Review. There are seven areas of enquiry, covering access to capital, incentives, skills, procurement, levelling up (though they call it ‘geographical distribution’), listing and diversity.

The Review Panel is chaired by Rachel Reeves, the Shadow Chancellor, and includes Tom Adeyoola (Extend Ventures), Alex Depledge (Resi), Julie Devonshire (King’s College London) and Lord Jim O’Neill (Northern Gritstone).

The panel will review the evidence submitted, and this will inform part of its final report. Labour wants to hear from individuals and institutions before the 12th August.

I can’t find the details anywhere online, so I’ve shared it below. We’ll be responding. You may want to share your thoughts with us – if so, drop me an email. Although I would also recommend responding to it yourself. You just need to send them through to cormac.savage@parliament.uk.

1. What more can we do to ensure new and growing businesses have access to capital, and in particular patient capital?
– Where are the gaps in the current funding landscape? (e.g. by stage of funding, by type of firm, by sector).
– Are the current set of institutions (e.g. British Business Bank and British Patient Capital) right, and do they have the right mandates?
– What regulatory and policy changes could be made to encourage deeper provision of patient capital in the UK?

2. Do we have the right incentives for growing businesses in the UK, and how do they compare to other countries?
– How does the tax system incentivise growing businesses – in particular are there complexities or contradictions that limit this?
– Outside of the tax system, how could policy or institutional features be changed to provide greater incentives?

3. Do universities have the right skills, structures and incentives to allow them to successfully spin out and grow businesses?
– How well are universities set up to encourage spin-outs and the commercialisation of research?
– How can government help ensure universities have the right ecosystem of investor networks, firms, and leaders, and the right structures to spin out businesses?
– How should universities build enterprise into their institutions and recruitment processes?

4. How do we improve access to public procurement for start-ups?
– What are the barriers to start-ups accessing public procurement?
– How could policy reduce these barriers and/or actively prioritise high-growth British businesses in procurement decisions?

5. How do we ensure we have a better geographical distribution of start-up high-growth businesses across the UK?
– What are the key barriers to wider geographical distribution?
– Can better distribution be achieved through central policy, or should it focus on (setting up) empowering local institutions?

6. Should we be encouraging more firms to list in London? If so, how?
– What are the economic benefits, and how great are they, from firms listing in London rather than elsewhere?
– How does the complexity and flexibility of the listings regime compare with other key financial centres?

7. How do we ensure that women and people from ethnic minorities can access the finance, support, and networks necessary to successfully start businesses?
– What are the key barriers to women and people from ethnic minorities starting and growing businesses?

ARIA
It’s only natural that an incoming Prime Minister scraps (or starves) some of the ideas and institutions that the previous administration came up with. However, one that they should run with is the Advanced Research and Invention Agency (ARIA), which this week finally announced its new CEO and chair: Ilan Gur and Matt Clifford MBE.

I wrote last year about why I’ve been cautiously optimistic about this. Ben Reinhardt is the guy to read if you want to know more about why I'm optimistic about the potential – here, here, and sign up to his Substack here.

Whoever wins between Rishi and Liz, they should embrace this project with open arms.
Matt Clifford is a really impressive guy. That’s why we asked him to write an article on why network and talent density is the key to entrepreneurial success. If you really want to know what makes him tick, he has 224 issues of his newsletter.

I’ve not met Ilan Gur, but he has a great CV and sounds like a smart and clear thinker on this podcast with Matt on how technology collides with politics, culture and society.

Chalk or Cheese?

Whether you’re following every twist of the knife and turn of fortunes, or were bored before it started, for better or worse, the result of the Conservative Party’s leadership election will impact the entrepreneurial landscape of the UK.

There are clear differences on policy emerging between the candidates. As Sam Dumitriu explains in his latest Substack, on tax it’s a pretty stark choice between Rishi Sunak and the other candidates. And while it may not be obvious from listening to their televised pitches, Public First’s Conservative Leadership Election Policy Tracker shows battle lines are being drawn on some of the other big issues.

Similarly, Taso Advisory is tracking the candidates’ tech policy positions, with differences emerging on the Online Safety Bill. And FT Sifted has had a stab (somewhat in the dark) at ranking the candidates based on who they think would be best for startups: Sunak 9/10, Truss 8/10, Badenoch 8/10, Tugendhat 5/10, Mordaunt 4/10 (other rankings are available).

These disagreements will only get more stark in the TV debates: 7.30pm this evening on Channel 4, 7pm Sunday on ITV, and 8pm Tuesday on Sky News. And while only Conservative Party Members (0.3% of the total UK electorate) will decide the next leader, there is no escaping the consequences of their decision.

Procure Meant
While I’ve been quite critical of the capability of the outgoing government to get things done, one area where entrepreneurs will start to see progress is in public procurement. Somewhat below the radar, in his role as Minister for Government Efficiency Jacob Rees-Mogg has been driving this agenda.

We’ve been making noises behind the scenes, and this week partnered with Enterprise Nation on a report as part of our ongoing Access all Areas project. Using fresh figures from government tenders and data provider Tussell, Access all Areas: Government reveals that despite the policy ambition to increase spending with SMEs to 25%, over the past five years the government had managed to spend just 10% of its total procurement budget directly with small businesses.

Procurement in the UK accounts for a third of all government spending, and over a 10th of all spending in the economy, but many small businesses are locked out of tendering. This is bad for competition and bad for innovation. As Aria Babu argues, the system is unnecessarily bureaucratic, which is easier for larger firms to cope with as small businesses don’t have dedicated staff time and resources to searching for procurement opportunities and fill out arduously long tenders.

Here are the key recommendations, which were wholeheartedly backed by Jacob Rees-Mogg MP at the launch:

– Publish pipelines early: Public bodies should post a pipeline of contracts that are likely to come up. For example, the government knows that if it has cleaning services for their buildings and has negotiated a two-year contract, it will want some form of cleaning services again in two years' time.

– Improve pre-procurement consortium building: Provide a platform which can allow businesses to connect with each other so that they can decide to submit bids together and/or with large tier one suppliers.

– Establish a pro-innovation culture: Look for indicators other than history of procurement to deduce ability to deliver on scale. This could include things such as some staff have worked on large projects or if the company has managed to scale quickly.

– Write bids in a way that allows for more innovative solutions: Procurement teams should avoid writing tenders in a too narrow format. Instead of procuring for "a local library" they should instead consider writing a tender for a way of giving local people access to a broad catalogue of books" and see what solutions firms offer to their problems.

– Decrease bureaucracy: Dynamic procurement allows companies to submit information about their company once, which then makes them eligible for all contracts of a certain type. On this, we welcome news of the single sign-on referenced in the Procurement Bill now going through parliament.

– Stick with one method of publishing SME spending: Government should establish one method of measuring the proportion of procurement budgets going towards SMEs and stick with it.

I’ll leave the final words for Emma Jones CBE, founder of Enterprise Nation and a former SME Crown Representative:

"The government has done a great job of encouraging the growth of the UK's start-up and small business ecosystem. The next logical step is to play a role in their growth, by ensuring they are buying from them, either directly, via consortiums or through larger businesses that make a point of working in partnership with small firms.

"Working with government can be life-changing for smaller businesses. It can provide them with opportunities and experiences and can lead to sustainable and significant scale.

"We're not suggesting a 'bonfire of the red tape', but this report shows a significant reduction in bureaucracy could help to turn the dial on small business growth."

For further reading, please check out our earlier Procurement and Innovation report.

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