Why we should welcome those who can make our country greater

For many firms in my constituency, a flexible immigration policy is the litmus test for the proposition that the UK is ‘open for business’.

It was therefore only a matter of months into the coalition’s five year term before the wisdom of its immigration cap came into question. No one doubted the popular appeal of this sound-bite policy. But was it possible to reduce net annual migration to the ‘tens of thousands’ without causing economic harm?

The public commitment to this policy goal has always disguised tensions over it within the coalition government. The Treasury and Business Department understand that the free flow of talented professionals, entrepreneurs and students to the UK is vital to delivering economic growth. But the Home Office has always pushed back against attempts to loosen the rules, confident in its strong mandate from the public.

It goes without saying that immigration reform of some kind was needed. The Home Secretary has made great strides in cracking down on bogus colleges, sham marriages, health tourists and the like. The government is also making progress in addressing the ‘pull’ factors that make Britain appeal to benefits tourists – thought not fast enough for some.

However as February’s migration figures demonstrated, the coalition’s cap has been undeliverable – net migration has risen by 42% to 298 000 in the past year alone. This was always going to be the case for so long as we had virtually unrestricted movement of EU citizens. What is a mark of this nation’s success – the economic growth that is attracting young workers from across the continent – has become a badge of this government’s failure.

What is worse, however, is the consensus from businesses and higher education providers that the cap has caused damage to the UK economy and Britain’s image abroad. I represent a central London seat that contains many of the country’s top businesses and three of its best universities. For several years now they have highlighted to me the hurdles and hoops placed in their way of bringing into the UK, or retaining, highly talented individuals whether students, post-graduate researchers or leading academics.

They cannot understand why this government has led a clampdown on precisely the type of migrant that we want to attract – the skilled student, entrepreneur or worker from natural growth markets such as China and India, or the English-speaking professional from allies such as Australia, the US and Canada. Indeed they fear we are training and educating some of the world’s brightest international students, and then discouraging them from staying here to benefit existing businesses or to set up their own enterprise.

It is a cliché that a reputation takes years to build but can be lost in an instant. However, the UK has risked losing its hard-won standing as a country that welcomes trade, investment and talent from around the world as a result of the cap.

It is for that reason I set up Conservatives for Managed Migration in March last year, a group that hopes to promote a calm, reasoned debate about immigration both within and beyond the Conservative Party. As we approach the General Election on 7 May, we have been calling on the Party to drop the idea of an undeliverable cap of numbers.

However if the Party insists on keeping this type of target-based policy in place, we have been calling for students to be removed from the net migration figure. We should also like to see a partial reinstatement of the Post-Study Work Visa, focusing on specific subjects to address skills gaps. This visa’s removal in 2012 has had a detrimental impact on the graduate jobs market, driving many of the most talented students back to their home countries when they are ready to join the workforce. It had previously enabled graduates to seek employment without having a sponsor, but now students who wish to stay in the UK after their course have to prove they have a job offer from a government-approved sponsor employer. Alternatively they can apply for independent status such as tier-one entrepreneur, but that requires a minimum £50,000 investment (something we might perhaps look to lower for talented graduates who wish to stay and develop business ideas).

To encourage English-speaking professionals, such as Kiwi accountants or American lawyers, we should like to see a Professional Mobility Programme as part of the current Tier 2 entry arrangements. Beyond that, we are really encouraging the Home Office to find a way of dealing quickly and efficiently with applications. I receive a steady stream of complaints about the Border Agency from business constituents and I believe many of the concerns about our immigration system could be addressed if we simply got to grips with the processing system.

Thankfully the government is alive to many of the concerns we have raised. Last month, for instance, HQ-UK was launched, an unashamed bid to get US tech companies to base their European headquarters in London. The government programme includes a so-called ‘concierge service’ that speeds up visa applications and gives priority border control at airports. We also have the Sirius programme from UKTI which is aimed at international graduates who want to start and grow a business in the UK.  This pioneering scheme invites talented young entrepreneurs with world-class start-up ideas to get their business off the ground in the UK, helping boost Britain’s enterprise community, creating jobs and inviting foreign investment.

Immigration will not go away as an election issue over the next 51 days. So it is up to all of us here to keep steadfastly and patiently making the case that the UK’s economic future depends on our taking the right approach towards those who wish to work, study and contribute here. Flexibility in a country’s immigration system is now part and parcel of being an engaged member of the global economy. International businesses and business people, not to mention academics, expect to be able to move with relative ease between open and dynamic global cities, just as many mobile Britons would anticipate being able to work in Hong Kong, New York, Shanghai or Mumbai for a spell. Similarly, students who come here when they are young become ambassadors for the UK for the rest of their lives.

These are precious advantages we should not throw away. Simply put, those countries which restrict the flow of talent risk economic isolation in an age of globalisation.

Mark Field is MP for the Cities of London and Westminster and Founder of Conservatives for Managed Migration. This article is based on a speech delivered at a recent Power Lunch.

March Budget 2015: Good news for entrepreneurs?

As TEN director Philip Salter writes in his Forbes column this week, the one thing that stands out from this year’s Budget is the Chancellor’s relentless commitment towards supporting UK entrepreneurs.

What we have, he writes, is a government obsessed with “innovation” and “growth”. The Budget contains details on more incubators, the introduction of an apprenticeship voucher – and, even more positively, the removal of the requirement that 70 per cent of the funds raised through SEIS must have been spent before EIS or Venture Capital Trust funding can be raised.

Octopus Ventures’ George Whitehead told TEN that such measures will “sustain the very strong entrepreneurial environment” that has been built in Britain. Now, the country just has to weather the inevitable political uncertainties in the run up to and after May’s General Election.

Budget reactions

From the moment the Chancellor sat down yesterday, there was a rush for commentators to do what they do best: comment. However, until we employ artificial intelligence for the job, there just isn’t time to read and analyse the 124 page document, the many other relevant documents, as well as reasonably crunch the numbers before the end of the day. In truth, you may want to wait until the Sunday papers for a more detailed reaction.

That said, if you’re keen to get the headline announcements, I’ve written a short article for Forbes here, and following are some other useful reactions outlining how the Budget impacts entrepreneurs:

• The Key Measures for Businesses and Entrepreneurs – Sophie Hobson, London Loves Business
• What the Budget means for SMEs – Anil Stocker, Economia
• Budget reaction from Enterprise Nation – Emma Jones, Enterprise Nation
• Octopus comments on the Budget 2015 ­– Octopus Investments
• Budget 2015 CBI Reaction – John Cridland, CBI
• A “solid and responsible Budget” – IOD
• What the Budget means for Startups – Guy Levin, Coadec
• Companies cautiously welcome cocktail of tax cuts – Lucy Tobin, The Independent
• Government must do more to level the business playing field – Phil Orford, Forum of Private Business
• Innovative firms, tech clusters and exporters receive lion’s share of giveaways – Rebecca Burn-Callander, Telegraph
• 8 ways Budget 2015 affects UK tech startups – Sam Shead, Techworld

Entrepreneurs’ Relief is worth defending

Defenders of Entrepreneurs’ Relief are on the back foot. In the corridors of power, rumblings have been heard that this tax relief is under threat. As entrepreneur Guy Mucklow writes in City A.M.:

“Originally introduced by Labour seven years ago, the Entrepreneurs’ relief lifetime allowance was doubled by the coalition government to £10m in March 2011. However, according to a report by the National Audit Office in November 2014, the cost of the relief has increased to almost £3bn. Subsequent political scrutiny could put its future in jeopardy.”

Entrepreneurs’ Relief offers business owners a lifetime allowance of £10m of gain taxed at the reduced rate of 10% for individual shareholdings of over 5%. Since its introduction in 2008 – when it replaced Taper Relief – the allowance has been raised to £2m, 5m, and finally its current level of £10m.

Its success may well contribute to its downfall. The £3bn has been “lost” because entrepreneurship is flourishing in the UK – partly because successive government have realised how vital entrepreneurs are and therefore offered people tax incentives to take the leap. If the idea is to encourage entrepreneurs, it is short-sighted to bemoan the loss of tax revenue (an inevitable by-product of the policy’s success).

In our Manifesto, Tim Hames of the BVCA argued forcefully that we should be extending Entrepreneurs’ Relief:

“If the Government were to discard the 5% requirement, lure business angels yet further into the start-up scene and eliminate the current cap altogether, it would revolutionise the tax treatment of entrepreneurs in Britain. The howls of anguish from the likes of Berlin, Dublin and Luxembourg would be audible in the Treasury.”

Getting rid of the 5% equity requirement should be prioritised in any move pushing for its extension. It may be pushing entrepreneurs to exit their companies or not take on extra funding in case they get diluted below the 5% threshold. Labour may be amenable. Its March 2013 Small Business Taskforce report stated:

“Extend entrepreneurs’ relief beyond capital gains to dividends, in order to remove the incentive for entrepreneurs to dispose of their businesses rather than grow them. Reduce the 5% threshold for entrepreneurs’ relief to 1% or below to allow more employees to benefit from investing in the high growth companies they work for.”

In contrast, the Liberal Democrats’ 2013 autumn conference, a policy paper entitled Fairer Taxes, Policies for the Reform of Taxation was endorsed by the party. It included the following statement:

“We wish to focus Entrepreneurs’ Relief to better serve the purpose for which it is intended; incentivising entrepreneurs and start-up business owners, and prevent it from simply being used as a way for wealthy investors to reduce their tax bills. We would therefore increase the shareholding requirement to 25%.”

Extending it to 25% would definitely incentivise entrepreneurs to exit their companies early. There is no earthly reason why it should be raised from 5% and every reason why is should be cut. Britain is backing entrepreneurs – now isn’t the time to take the foot off the pedal.

The TEN Interview: How Nutmeg’s Nick Hungerford spiced up the investment management industry

Nutmeg is an online discretionary investment manager that builds and manages portfolios for all levels of wealth (the minimum investment is £1,000).

Within each portfolio, clients get a mix of up to ten asset classes, ranging from private equity to gold. Nutmeg’s founder is Nick Hungerford, a former Stanford MBA student who grew up wanting to be a teacher. He talks to TEN’s director Philip Salter about the ways in which the financial services landscape will change in the next few years – and how he is continuing to attract clients.

Read the full Forbes interview here.

One way to narrow the North-South divide

We all know there’s a North-South divide, but from a policymakers perspective it’s not clear what – if anything – we should be doing about it.

To a significant degree, the relative economic success of London and the South East is due to factors beyond the powers of politicians to rebalance (without simply dragging the country’s capital down). The decline of manufacturing, the rise of London and Cambridge as tech hubs, and the cultural pull of the metropolis cannot be overturned – no matter how much money the government throws at it.

But even though we can’t turn the country upside-down, given that most of us would prefer wealth and opportunity to be a little more evenly distributed, we should try to identify instances where we are prejudicing the South at the expense of the North. Here, one thing stands out above all others: the decision to postpone the revaluation of business rates.

As Simon Danczuk MP wrote a few years ago in the Guardian: “The problem is in my constituency – and no doubt many others – some commercial property values have fallen by up to 40 per cent since 2008.” For Danczuk’s Rochdale constituency, the FT reported that “a study by Liverpool can you buy ativan online university showed that if business rates were set using up-to-date property values, shops in Rochdale would experience a 65 per cent fall in rates bills.” In contrast, London shops would see a 52 per cent increase.

These costs weigh heavily on the North. Of the top 10 town centres with the greatest percentage of empty shops, seven are in the North East or North West. The Daily Mail reported last year that the North West is suffering from 16.9 per cent empty shop space, versus London’s 7.9 per cent. In Hartlepool, County Durham, 27.3 per cent of stores in the town are up for rent.

Demanding regular revaluations shouldn’t be confused with a call to cut business rates. As has been argued forcefully on this blog, business rates are about the least worst form of taxation: “Repeated taxes on property, that is business rates, have the lowest deadweight costs of any form of tax. The only one that could be better is a proper land value tax.” Nevertheless, landlords and the entrepreneurs that want to use the abandoned spaces deserve rates that reflect the value of the land – the first step of a Northern regeneration should be a revaluation.

The TEN Interview: Philip Salter talks to Enterprise Nation’s Emma Jones

Our director Philip Salter chats to Enterprise Nation founder Emma Jones MBE about what UK small businesses want from the General Election.

Enterprise Nation was founded in 2005 to create an inspirational environment for business owners and would-be entrepreneurs, a supportive community, informational books and events, and a campaigning voice to help small businesses in the UK flourish.

Read the full interview in Philip Salter’s Forbes column here.

Green Belts increase business rents too

If you’ve picked up a newspaper or turned on a radio or TV today then the chances are you’ve read or heard about the Adam Smith Institute’s latest research paper – The Green Noose: An analysis of Green Belts and proposals for reform.

A section of the paper considers the impact of Green Belts upon businesses. As author Tom Papworth explains, increasing the cost of business premises increases the costs of running businesses, which pushes up prices. This reduces the real disposable incomes of households, while putting UK businesses at a competitive disadvantage by shifting production overseas.

A few years ago, I interviewed the inventor of the iconic Brompton bicycle. While visiting their factory in Wandsworth a couple of television crews from the BBC and ITV turned up to record the conveyor belts and workers in action. It turned out this was a common occurrence, principally because it’s the only manufacturing taking place on that scale in London (and the television crews didn’t want to travel any further). According to Papworth, London’s Green Belt could be the reason Brompton is that last factory standing:

“Evans and Hartwich suggest that land-intensive industries, such as manufacturing, have declined rapidly, because many have fled the country to locate themselves in a country with lower land prices. If correct, this would be a major challenge to the conventional view that deindustrialisation was the result of supply-side reforms and monetarist policies in the 1980s, instead suggesting that our land use planning laws bore a substantial amount of responsibility for the decline of UK manufacturing in the past half century.”

This makes sense. LSE Geography Professor Henry Overman cites some concerning research in an useful blog looking at the case for building on Green Belts:

“Green Belts increase office rents. Cheshire and Hilber (2008) carefully document how planning restrictions in England impose a ‘tax’ on office developments that varies from around 250 per cent (of development costs) in Birmingham, to 400-800 per cent in London. In contrast, New York imposes a ‘tax’ of around 0-50 per cent, Amsterdam around 200 per cent and central Paris around 300 per cent.”

If enacted, the paper’s suggested reforms would provide affordable housing to Generation Rent, more competitive business rents, and the possibility for more manufacturing entrepreneurs to run their businesses out of this country. What’s not to like?

One reason why we get bad policies

If the What Works Centre for Local Economic Growth didn’t exist someone would have to invent it. It analyses policies to see which are the most effective in supporting and increasing local economic growth. Although its focus is local, most of its findings have national implications.

So far, the centre has looked at a number of policy areas. A theme cutting across all of its findings is that to a large extent we don’t really know what works. Too often, the evidence is inconclusive or lacking.

On access to finance:

• We found very few studies that look at the impact of schemes on both access to finance (direct effect of the scheme) and on the subsequent performance of firms (indirect effects of the scheme).
• While most programmes appear to improve access to finance, there is much weaker evidence that this leads to improved firm performance. This makes it much harder to assess whether access to finance interventions really improve the wider economic outcomes (e.g. productivity, employment) that policymakers care about.
• As with other reviews, we found very few studies that gathered (or had access to) information on scheme costs. As a result, we have very little evidence on the value for money of different interventions.

On business advice:

• There is insufficient evidence to establish the effectiveness of sector specific programmes compared to more general programmes.
• We found no high quality impact evaluations that explicitly look at the outcomes for female-headed or BME businesses.
• We found two high-quality evaluations of programmes aimed at incubating www.ativan777.com start-ups. Both programmes were targeted at unemployed people and show mixed results overall. However, there is a lack of impact evaluation for Dragons’ Den-type accelerator programmes that aim to launch high-growth businesses and involve competitive entry.

On employment training:

• We have found little evidence which provides robust, consistent insight into the relative value for money of different approaches. Most assessments of ‘cost per outcome’ fail to provide a control group for comparison.
• We found no evidence that would suggest local delivery is more or less effective than national delivery.

As the above suggests, on key areas of government policy we lack evidence of what works, particularly when it comes to determining value for money. Given the billions spent on various schemes this simply isn’t good enough.

The way to move forward from this is to work backwards, ensuring that a robust framework of analysis is build into each and every government programme so that we can know how successful (or otherwise) each intervention is. Crucially this should be done in a way that lets it be compared by the same metrics also being measured in other schemes trying to achieve similar outcomes.

Residing in the economic departments of our universities are the brains to do exactly this – to date though, policymakers have lacked the gumption to systematically experiment, measure and evaluate what works. Until they do we will just keep getting ad hoc policies with enough Rumsfeldian known unknowns to make an economist cry.

The TEN Interview: Philip Salter speaks to YPlan’s Rytis Vitkauskas

YPlan, co-founded by Rytis Vitkauskas and Viktoras Jucikas, is the perfect business for the FOMO generation.

The app helps users decide what to do that night, by matching them to tickets for a selection of West End shows, music where to buy ativan online gigs, food tastings and gallery exhibitions. Almost 90 per cent of YPlan’s sales are made within 48 hours of an event starting.

You can read the full interview in our director’s Forbes column here.

Government loans for master’s students is a risky business

The chancellor announced a student loan system for postgraduate master’s degrees in the Autumn Statement. Although many have praised the move, it risks doing more harm than good.

There are the obvious unintended consequence of encouraging students to undertake courses that aren’t in their (or taxpayers’) best interest, but here I’ll focus on risks to the nascent funding market for postgraduate loans.

It’s certainly a popular policy. As the FT reports: “Universities, unions and business groups have reached rare agreement in welcoming new £10,000 loans intended to ‘revolutionise’ the support available for students taking postgraduate degrees.” But the devil will be in the detail. Just consider the Student Loans Company, which MPs recently requested face an inquiry following the ‘persistent miscalculation’ of money paid out in loans that will not be repaid. But more important than the wasted money, the government’s intervention in the postgraduate student loan market risks crowding out private sector solutions.

The failure of the Professional and Career Development Loans (PCDL), which are already subsidised by the government through the Skills Funding Agency, is principally due to banks being ill-suited to lending to students (and one the main reasons for this is because of excessive banking regulation). The analogy with SME business lending is the right one – students, buy ativan usa like SMEs, are risky and banks are no longer best placed to lend to them.

Smaller and leaner companies can fill the gap where banks fear to tread. As we have seen with Santander’s partnership with Funding Circle in SME finance, the banks know that nimble companies have the skills to plug gaps in the market. In fact, entrepreneurial companies like Future Finance, StudentFunder and Prodigy Finance are already responding to the demand for loans for postgraduate studies.

Whether the bulk of the money comes from peer-to-peer (P2P) investors, alumni or universities themselves, the plurality of the private sector would trump the one-size-fits all approach that the government could take. We are on the verge of the equivalent of the funding revolution we are seeing in SME finance but this intervention risks stymieing it.

All is not lost. The government will consult on how to put the policy into practice and here they have the opportunity to do less harm than copying the PCDL model. As with SME finance, the government could funnel the loans through providers already in the marketplace. And, most importantly, government needs an exit strategy so that we don’t see mission creep and the destruction of a private sector solution.

Why Randomised Controlled Trials are vital for policymaking

In this week’s Forbes column, I analyse the findings of a new report from the RSA which aims to use behavioural insights as the basis for recommendations to boost recruitment and growth for the UK’s self employed.

Introducing RCTs for business support schemes isn’t new. In fact, the recent Growth Vouchers programme randomly assigns £2,000 to help finance strategic business advice.

Read my analysis of the report – and why RCTs are so important for policymakers weighing up the cost and benefits of competing schemes – here.

The TEN Interview: Philip Salter talks to TransferWise founder Taavet Hinrikus

For his most recent Forbes column, our director Philip Salter speaks to TransferWise co-founder Taavet Hinrikus about disrupting the banking industry, bitcoin, and how his innovative company is leading the way in London’s flourishing fintech scene. The interview can be read in full here.

TEN releases new report on international entrepreneurship

Our new report, Made in the UK: Unlocking the door to international entrepreneurs, conducted with the National Union of Students, shows the benefits of retaining international talent.

Research from University College London has revealed that, between 2001 and 2011, non-EU migrants contributed more than their fair share to our tax and welfare systems. But while our study found as many as 42 per cent of current international (non-EU) students intend to set up their own businesses following graduation, there is a worrying disconnect between potential and policy. Just a third of these graduates want to set up their companies in the UK, and a mere 18 per cent think that the processes in place for post-study work in the UK are better than in other countries.

As our programmes director Annabel Denham wrote in City AM yesterday:

More must be done to encourage these students to start up companies in Britain when they finish their studies, and to this end the government needs to reform the graduate entrepreneur visa, introduced in 2012 to try to plug the gap left by ending the post-study option.

The take-up of the graduate entrepreneur visa has been disappointing and the sentiment expressed by graduates in our survey suggests this won’t change any time order ativan online usa soon. Just 2 per cent of respondents who intend to start a business following graduation applied for the UK graduate entrepreneur visa, with almost two thirds (62 per cent) saying they didn’t even consider it. In fact, nearly half of respondents don’t know whether their institution is certified to endorse them for the visa.

Part of the problem lies in universities being reluctant to take on the risk of endorsing students. To counteract this, official Home Office guidance needs to make it clear that universities aren’t risking their Tier 4 licence – which allows universities to accept students from outside the EU – in the process. Also, allowing UK Trade & Investment-approved accelerators to endorse students would help identify the best entrepreneurs. The report puts forward a slew of further recommendations, but perhaps none would be more effective than reinstating a post-study work visa, letting graduates work in the UK for at least a year after completing their studies.

And as I have written in my Forbes column, despite the anti-immigration rhetoric in the UK’s political debate, the public here actually supports international graduate entrepreneurs. So we just need politicians with the nerve to implement the necessary reforms.

Our visa system is failing international graduate entrepreneurs

The Entrepreneurs Network has just released a new report. Based on a survey of 1,599 international students, Made in the UK: Unlocking the Door to International Entrepreneursreveals how the UK’s visa system is failing international graduate entrepreneurs who want to start a business in the UK.

Undertaken with support from the Adam Smith Institute and in partnership with the National Union of Students (NUS), we find that a significant proportion of international students – that is students coming from outside the EU – have entrepreneurial ambitions. In fact, 42% of international students intend to start their own business following graduation. However, only 33% of these students, or 14% of the total, want to do so in the UK. Clearly we are doing something wrong.

The Tier 1 (Graduate Entrepreneur) visa was set up in 2012 to encourage international graduates to start their businesses when post-study routes were taken away. However, uptake has been woeful and the results of the survey suggest this isn’t likely to change any time soon:

• Just 2% of respondents intending to start a business following graduation applied for the UK Tier 1 (Graduate Entrepreneur) visa, with almost two thirds, 62%, saying they didn’t even consider it.
• Nearly half, 43%, of respondents think their institution is certified to endorse them for a Tier 1 (Graduate Entrepreneur) visa.
• Only 18% think that the UK has better post-study processes in place for international students than other countries; 32% think it is worse than other countries.

Based on these and further findings, the report puts forward nine recommendations for government, including:

• Removing the Tier 4 ban on self-employment for those working within an institutional programme (curricular or co-curricular) or other accelerator.
• Allowing UKTI-approved accelerators to endorse international students in their programmes under the Tier 1 (Graduate Entrepreneur) scheme.
• De-coupling the risk for educational institutions in endorsing international graduates for Tier 1 (Graduate Entrepreneur) visas from institutions’ Tier 4 license. This should be made explicit in the official Home Office guidance and in the way the Home Office applies its audit procedures for institutions.
• Reinstating a post-study work visa, de-coupled from the sponsor system, to allow international students to explore markets and industry before finalising their business idea for the Tier 1 (Graduate Entrepreneur) application. In fact, 81% of the respondents considering starting their own business are interested in the possibility of permanent residency under the Tier 1 (Graduate Entrepreneur) visa.

Our visa system isn’t supporting the entrepreneurial ambitions of international graduates. As things stand, we are training some of the world’s best and brightest young people at our world-class universities only to push them to set up their businesses overseas.

Releasing data could help Britain’s entrepreneurs scale-up

The celebrated entrepreneur, investor and adviser Sherry Coutu CBE has just released a detailed report on scale-up businesses. Scale-ups are defined as enterprises with average annualised growth in employees or turnover greater than 20 per cent per annum over a three-year period, and with more than 10 employees at the beginning of the observation period.

The Scale-Up Report explains how “a boost of just one per cent to our scale-up population should drive an additional 238,000 jobs and £38 billion to GVA within three years”…“[I]n the medium-term, assuming we address the skills-gap, we stand to benefit by £96 billion per annum and in the long-run, if we close the scale-up gap, then we stand to gain 150,000 net jobs and £225 billion additional GVA by 2034.”

The report identifies key issues for helping these companies grow:

• Finding employees to hire who have the skills they need
• Building their leadership capability
• Accessing customers in other markets / home market
• Accessing the right combination of finance
• Navigating infrastructure

Twelve recommendations are put forward, but the first (arguably) offers the biggest bang for its buck:

Recommendation 1. National data sets should be made available so that local public and private sector organisations can identify, target and evaluate their support to scale-up companies, and evaluate their impact on UK economic growth.

The specific data required includes:

• Company registration number
• Revenue (UK and export)
• Location of headquarters and plant
• R&D tax credit (recipients and amount)
• Employment data (number of pay slips issued in a given month)

It is suggested that data “should be made available on a real-time basis openly or to a cross-departmental scale-up support unit within government. This would allow both public and private sector organisations to target scale-ups accurately to make sure support is offered at right time to the right leaders.”

Releasing this data wouldn’t add to the bureaucracy faced by entrepreneurs. As the report explains, companies are already required to submit turnover data annually to Companies House, report on PAYE in real-time, file quarterly VAT returns, and report on the amount the spend on R&D (if claim R&D Tax Credits). However, as the report acknowledges, releasing this data raises questions around data privacy. To counter this criticism, the report uses the example of the Cambridge Cluster Map, where this sort of data is already collated, and 59 companies have asked to be included in it since its initial launch.

Also, following a YouGov survey, the report reveals: “83% of scale-ups were in favour of the government sharing information on their company growth with other government departments or agencies, and 72% were in favour of government sharing this externally.”

But this leaves a minority of companies unwilling to open up their data willy nilly. The report doesn’t offer any guidance on how to deal with these concerns but there should be a way for companies to opt out. If, as the report reasonably suggests, these companies are then better targeted for support, those that have opted out will surely be all too ready to release their data too.

Mazzucato versus Worstall and Westlake

Marianna Mazzucato’s 2013 The Entrepreneurial State is the most influential book on innovation. Although Mazzucato’s arguments in the book and beyond are many and varied – for example, I’m particularly sympathetic to her scepticism of the uncritical financial support for small businesses – the arguments gaining the most traction are the least convincing and potentially most damaging.

In short, Mazzucato’s thesis is that the state has been the key driver of “innovation” and should therefore take a more active role than they currently do. Central to this, is the policy suggestion that government agencies that fund this innovation should take a cut of the profits from the inventions. Two writers have convincingly unpicked this – the Adam Smith Institute’s Tim Worstall and Nesta’s Stian Westlake.

First, on the point about states driving innovation, Worstall cites William Baumol, who makes the crucial distinction between innovation and inventions. In reference to Mazzucato’s observation that the key technologies that went into making the iPhone were state funded Worstall explains: “Baumol’s point is that the private sector could have come up with these technologies, even though it was the state that did. But only the private, or market, sector could have come up with the iPhone.”

To put it another way, the iPhone is more than the sum of its parts. In an excellent article (worth reading in full), Westlake cites the work of Jonathan Haskel, which “suggests that for every £1 that British businesses spend on R&D, they spend £8 on other intangible investments of the sort that Apple used to make the iPod a success: design, new business models, marketing and software development.”

But perhaps Mazzucato’s biggest mistake is one of policy. As Westlake explains elsewhere, in The Entrepreneurial State Mazzucato suggests that “the state should find ways to share directly in the profits of companies that benefit from government innovation spending. A repayment system needs to ‘reward [the government for] the wins when they happen so that the returns can cover the losses from the inevitable failures.’”

Westlake outline three convincing reasons why this wouldn’t work: “it would be nightmarish to administer; it imposes costs on exactly the wrong businesses, creating both a presentational and a practical problem; and it’s worse than an already existing option – funding innovation from general taxation.” Westlake’s last point cuts to heart of the problem. As Worstall has pointed out in a response to Mazzucato’s response to his criticism of her work:

That governments sometimes produce public goods should not be a surprise. That’s what governments are for in fact. To provide collectively those things that cannot be provided through voluntary cooperation. To then complain that government doesn’t get extra rewards for doing the very thing we institute it for seems most odd. That’s why we pay our taxes in the first place: in order to get those public goods. Why should there then be some extra appropriation when all government is doing is what we asked it to and paid for it to do in the first place?

We shouldn’t underestimate the economic value of high-growth small firms

A new report from Octopus Investments and the Centre for Economics and Business Research uncovers the economic value of the UK’s fastest growing small companies. The report can be found here, and our director Philip Salter’s analysis of its findings – and its policy recommendations – can be found in his Forbes column here.

Are bad jobs at bad wages are better than no jobs at all?

In the wake of the “This is what a feminist looks like” 62p-an-hour t-shirts scandal, our director, Philip Salter, considers the words of noted economist Paul Krugman in his 1997 essay, “In Praise of Cheap Labor”.

The revelation that the t-shirts created by The Fawcett Society as part of a campaign for women’s equality were in fact manufactured in a Mauritian sweatshop has been described as a monumental own goal.

As Salter points out in his Forbes column, the t-shirts on sale are expected to be recalled and production moved to Britain. But what about the sweatshop workers, he asks? Was Krugman right to make the case, back in 1997, that bad jobs at bad wages are better than no jobs at all? Read more here.

Why the startup mentality may not be bound by age

History suggests that it’s never too late to innovate, a forthcoming thesis will say.

According to Anton Howes (pictured), who is undertaking a PhD in Political Economy at King’s College London, many of the world’s great innovations have come buy brand ativan from the mature mind.

For his Forbes column, The Entrepreneurs Network director Philip Salter has been given a sneak preview of the research, and has spoken to Howes about the findings of his thesis. Read more about age and innovation here.