UK: Is Labour working for small business?

UK: Is Labour working for small business? - One year on, small business likes what it's seen so far of Labour. But worries remain about its commitment to enterprise culture. By Roger Cowe

Last Updated: 31 Aug 2010

One year on, small business likes what it's seen so far of Labour. But worries remain about its commitment to enterprise culture. By Roger Cowe

A decade ago, it would have been impossible to imagine the bosses of small businesses being relieved at Labour replacing the Conservatives in Westminster. Yet, after Labour's first year in office, that is how many now feel.

'The Conservatives' traditional role as the party of small business was beginning to wear a bit thin,' comments Dave Harrop of the Forum of Private Business. 'And we're quite impressed by the first year or so of Labour.

They seem to have a much better approach to listening to what small firms are saying.'

Legislation for interest on late payment is a good example. That was the number-one priority of the Forum's 24,000 members. The Tories appeared to be sympathetic but sympathy didn't translate into action. It is Labour that is actually doing something, with the Late Payment of Commercial Debts Act expected to hit the statute book this summer. Despite the prominence of the issue in the small business lobby, however, this is not unanimously seen as a step in the right direction.

Many believe a law governing late payment will make little difference, because large companies will merely change their official payment terms to match the reality, leaving their suppliers no better off, or they will find some excuse for not paying bills. 'There are so many ways round a law. The key issue is for the small supplier to stop and think about terms when they get the sale,' says Michael Rogerson of accountants Grant Thornton, which specialises in owner-managed companies.

While this legislation is controversial among the SME sector, there seems to be virtual unanimity on the most crucial influence of government - its management of the economy. The message is that Labour has done well, but would do better to bring down the value of the pound. 'There is a general feeling that the chancellor is keeping a tight rein on the fundamental economy, and that's good news,' comments Rogerson. 'We haven't had any huge lurches in one direction or another, which small business find very hard to cope with.'

But he highlights sterling as a big worry, saying that clients in manufacturing have had to turn away export business because they simply could not make any profit out of it. And he points out that the high interest rates, which have been keeping the pound high, have themselves been a worry for companies with loan finance. The tough interest rate stance has helped to keep inflation down but that has only exacerbated the exorbitant level of real interest rates - the extra over and above the rate of inflation.

Ian Peters, deputy director general of the British Chambers of Commerce, also warns of the danger of over-strength sterling. 'The biggest issue for small business is always the state of the economy', he says. 'If the economy is not right, that's what SMEs scream about. The strength of the pound is the biggest headache that SMEs have got. It's a nightmare for exporters but it is also beginning to affect the domestic market, because of cheap imports.' Peters believes the problem needed to be attacked last July, when the chancellor had his first Budget. 'It's too late now,' he states.

But, while small businesses may be wincing at Labour's macroeconomic policy, when it comes to the detail, Gordon Brown's recent Budget won approval from many quarters. The Forum's Harrop affirms: 'You couldn't really have asked for a better start.' Improvements in the capital gains tax regime and the new cut in corporation tax were probably the biggest bonuses for most, but equally important was the chancellor's concession, which has taken more small businesses out of the new installment system for paying company taxes. There were widespread fears that predicting the tax liability would have been time-consuming and imprecise, while the fact of having to pay tax during the year would have hit cash flow - critical for often under-capitalised smaller businesses.

Brown made great play in his Budget speech of the need to create the right conditions for enterprise. And he won plaudits from small business organisations for his plan to integrate the PAYE and national insurance systems. The promise of help for smaller employers with payroll issues was a further boost. Entrepreneurs have long complained about the additonal paperwork created by running the two systems separately, and will look forward to much simpler requirements.

Labour's strategists should not get too carried away over their success in the small business sector, however. There are still plenty of critics, and plenty of criticisms even from those who welcome the Government's apparently fresh approach. The tax changes are no use to entrepreneurs who are making losses trying to build up their firms, for example. And there was no news on the hated business rates, although a review of local government finance is keeping hopes alive.

But most concerns stem from Labour's wider agenda rather than the details of tax and economic policy. Top of the worries is the package of employment measures associated with the European Union's Social Chapter. Smaller employers don't want constraints on their freedom to employ people when and in the manner that they choose. 'There are worries about trade union recognition,' explains Peters. 'Small business could well be disadvantaged if the owner has no real negotiating experience, and is up against an experienced union official.'

The British Chamber of Commerce wants exemptions from the new rules for employers of fewer than 50 people. Similarly, it has been lobbying for maximum flexibility on working hours, and a minimum wage set at a level that does not cripple small businesses.

Like many representatives of organisations that aim to help SMEs, Peters is concerned about the network of government-sponsored agencies in the field. His judgment is that Labour has done better than the Tories to lick that network into shape, but more needs to be done. 'I am generally positive on this whole area of advice and support and the role of Business Links. The vision is right. But it's one thing to have a vision; it's another to put it into practice. It would have been nice to see something a little bit more specific,' he says.

While he welcomes Labour's moves to monitor and measure TEC performance, he nevertheless feels that there has been confusion between promoting Business Links as the unified brand, and trying to build this network as the service provider. He would prefer to see other organisations, such as his own, deliver services through the Links organisation. But on the whole he remains positive about the ability of small firms minister Barbara Roche to make things happen for her constituency. 'On balance, I think much of what the Government has done has been quite supportive of the small business sector,' he states.

There are still those who question the broader and deeper commitment of this Government, like its predecessors, to entrepreneurship. Despite the changes to capital gains tax and the cuts to corporation tax, they argue that Government is still primarily wedded to big business, despite the fact that 70% of private sector employment is in small firms. 'We've had platitudes from Labour and Tory alike about the enterprise culture,' explains Peter Sills, a senior partner at accountants Kidsons Impey. 'But there's still a feeling among our clients: "Are we really understood by the civil servants - do they really know what it's like to run a small or medium-sized business?"'

Sills wants civil servants seconded to work alongside entrepreneurs.

He says they would then see the impact of red tape, which can prevent businesses applying for grants because they don't want to waste time and wait for months before they get whatever funds are available.

The Government's commitment to and understanding of the sector has also been questioned by Martin Gagen, UK managing director of the venture capitalists, 3i. 'I am quite encouraged to see the focus on small business and venture capital,' he says. 'There is clearly a desire to create a climate favourable to SMEs and entrepreneurs. But there is a cultural issue about risk-taking.

The defining feature of entrepreneurs is that they take huge risks. And while there is all the right language, more work needs to be done to create a real enterprise culture.'

Clearly, there is a long way to go before Tony Blair can count on the small business lobby in the next general election.

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