Barriers to high-value entrepreneurship must be removed, says think tank

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The government must remove the barriers holding back potential entrepreneurs from starting the high-value, growth boosting companies which are key to unlocking UK productivity, says a new study by the Social Market Foundation (SMF) think tank.

Venturing Forth: Increasing high value entrepreneurship focuses on a group it identifies as potential ‘high value entrepreneurs’. These are the people who create the innovative new companies that have the widest positive effect on the UK economy and tend to be higher-paid graduates who choose to leave employment to do so.

But new data from the SMF reveals that while 48% of this group would like to start their own business, 62% say that their current household financial situation makes it too difficult to take on the risk involved.

The report suggests this is a missed opportunity for the economy as the UK lags behind other countries on rates of high value entrepreneurship – they are 50% higher in Sweden and twice as high in the Netherlands and the US. There is also a significant lack of women – men heavily dominate the ranks of high-value entrepreneurs, making up 74% of the total compared to women who account for just 26%. If the UK could increase its number of female high value entrepreneurs to that of men, opportunity driven entrepreneurship in the UK would rise by almost 50%.

The SMF report puts forward a full package of recommendations to encourage more of this type of opportunity driven entrepreneurial activity that contributes the most to economic growth. To try and reduce the risk which potential entrepreneurs say is holding them back the report recommends:

  • Banning non-compete clauses in employment contracts which restrict employees from entering a similar field of business as their employers – the report finds that at least 50% of all start up ideas come from experienced gained in a previous employment. In the US, states which have done this have enjoyed a growth advantage as a result.
  • Championing and monitoring the use of newly-introduced flexible working for those employees wishing to start a high-value business.
  • Legislating to introduce a “right to return” for employees leaving a company to start a business – similar to a right to return to employment after parental leave.
  • Reinstating tax reliefs for corporate venturing, at a comparable level to reliefs available under other investment schemes.

Report author and SMF Chief Economist, Nida Broughton, said:

“Whilst the economy has started to recover, our productivity growth has been weak. We need more entrepreneurship to boost innovation in the UK. But at the moment we are lagging behind other countries: we have fewer people starting the types of businesses that are likely to contribute most to economic growth. This is a huge missed opportunity that the Government must address.”

Commenting on the findings, report author Kitty Ussher, said:

“The decision to set up a business is complex and personal, particularly for those with other employment options. Yet our research shows that people with potentially the greatest amount to contribute in economic terms are the most concerned about making the leap. This is a market failure that justifies government intervention yet, to date, no political party has got to grips with what is required. Our report explores the perceived barriers to entrepreneurship among this key cohort and makes policy recommendations designed to maximise their ability to impact positively on economic growth in Britain.”

Notes to Editors:

  • Embargoed copies of Venturing Forth: Increasing high value entrepreneurship are available on request. Please contact Amanda Wolthuizen.
  • The new report will be launched at an event in Westminster with the Shadow Business Secretary Chuka Umunna MP, on Tuesday 15 July, 19:00-21:00. Details are available at: http://www.smf.co.uk/events/entrepreneurship/
  • This report is sponsored by The Entrepreneurship Centre at Saïd Business School, University of Oxford, EY, Nesta and Tech City UK. The SMF retains absolute editorial control over its outputs.
  • The SMF is a leading independent UK think tank which develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach www.smf.co.uk
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