Policy to encourage creation of an enterprise culture in UK

This submission relies heavily on the Richard Report "Small Business and Government" to the Conservative Party of May 2008 (http://www.bl.uk/bipc/pdfs/richardreport2008.pdf)

The signatories agree wholeheartedly with the broad conclusions and recommendations of the Richard Report.

The following specific detailed suggestions could, in the signatories' opinions, be usefully added to government policy:

1. Open up the Enterprise Investment Scheme

The problem:
EIS Relief, while broadly excellent, has four main drawbacks:

It is not available to existing Directors of the investee company
It is restricted to ordinary shares
It is restricted to higher rate tax
It is relatively complex to administer

Solution:
Extend the scheme to
non-executive directors whether or not they already hold office.
genuine third party risk money, regardless of 'type' of investment: loans of greater than three years, preference shares, convertible loans.
to full tax relief. Not many basic rate taxpayers will wish to take advantage, but why not if they have the means? It will increase the gearing on the investment from the investor's perspective from 1 in 4 to 2 in 3.

Simplify the administration by
making the investor responsible through his tax return,
subject to penalty for wrongful claiming.
making the rules and exclusions simpler
Retain certain non-qualifying businesses
(property, financial services, investment and so forth)
and geographical and trade limitations
(must be UK domiciled with UK domiciled shareholders)
but otherwise de-restrict so as to facilitate taxpayer compliance and reduce administration costs

2. Develop the Research and Development tax credits

The Problem:
R&D tax credits are broadly very welcome but:

They do nothing to assist start-up research for new businesses which are (almost by definition) non corporation tax and non PAYE payers.
They fail to reflect the considerable risk taken by start up businesses, despite the very significant future benefits to the economy brought by successes.

The Solution:
Create a new system whereby
Loans against future tax credits: Create longer term commercial loans which can be granted to SMEs against future R&D tax credits (so the loan can be repaid from the tax credit when the company begins to pay tax); such loans to be underwritten by the government, hence written off in the event of company failure.
Matched funding: Private third party investment into qualifying SME R&D is matched by government, whether or not the investment already carries EIS relief. The qualifying utilisation of the matched funds should be guaranteed by the investor: if audit proves that the funds were not spent on a qualifying purpose, he has to repay the matching through the tax system.

Create new definitions of 'qualifying R&D'
technology, engineering, environment etc?
or create exclusions (sales methodology, administration, training)

This will allow early stage research to be very significantly funded by the government, but it will only follow market forces and third party investment, and policed through the existing administration of HMRC.

3. Change the Enterprise Loan Guarantee Scheme to be less asset based

The Problem:
EFG is simply not working as bankers will only provide loans against assets and small companies simply don’t have suitable security.

The Solution:
Government should underwrite the major part of each individual loan, with
lenders taking a small share of the risk to ensure sensible lending.

4. Create a 'Stock Exchange' for Innovation

Problem:
The chronic waste, and/or leakage, of 'British Inventiveness' which is an inevitable consequence of the traditional avenues of commercialisation open to Inventors.

Solution:
The microFunding secure internet marketplace where Big Business, SMEs and individuals can match 'Technical/Business Requirement' with 'Innovation/Invention' with 'Business skills' and with early stage 'Investment'.

5. Channel subsidy through qualified Business Advisors

The Problem
At present small sums of money are made available through a management and leadership grant. This is an effort by the government to “second guess” what small business needs. This leads to curious abuses for little direct impact

The Solution
Create a qualification/recognise existing qualifications that enable the government to ensure that business advice is provided by those with the appropriate experience.
Enable the qualified advisors to apply for appropriate levels of subsidy to meet the needs generated by Small Business.

These changes, especially if coupled with the above funding initiatives, will encourage and permit the creation of a customer-led enterprise state.

It will be market-driven, efficient, responsive and effective;

And it will not cost a King's Ransom to achieve.