Charlie Elphicke MP: Smaller businesses are creating jobs and it's right that Osborne backs them

Six out of ten people work for small and medium sized enterprises (SMEs). So the help given to SMEs in Wednesday's Budget was the right approach. SMEs are not just major employers, they are the British economy's job creators too. Over the last couple of decades employment by large businesses has increased by around 10% - while the SME sector has created jobs at twice that rate.

The graph below shows the SME job growth trend against larger businesses:

Yet SMEs did not really have the support of the Government that they should have had over the past decade. Labour’s National Insurance jobs tax hikes acted to discourage SMEs from taking on new employees which would in turn help their businesses to grow - so the new £2,000 employment allowance is really welcome. SMEs will now be able to take on up to four people on the minimum wage without paying a penny in National Insurance or hire an extra person on £22,400 per annum.

Nor had SMEs previously been favoured when it came to business investment incentives. It is therefore good to see they will benefit most from the extension of the annual investment allowance from £25,000 to £250,000 as well as the extension of the small business rate relief scheme for another year.

 

All these measures are good for SMEs that are established and moving forward. But what about business start ups? Enterprise creation is noted by OECD studies as a serious driver of economic growth. The number of new enterprises that have been created has been rising in recent years. Yet can more new enterprises be encouraged?

 

It is often during difficult economic times that tomorrow's success stories are set up – the ones that help to drive economic expansion. So it's important to make starting a new business as easy as possible. A more generally applied new enterprise allowance than simply the currently unemployed would help get budding entrepreneurs the cash they need to get things going.

 

Most importantly it is imperative that we help enable ‘start up’ or very small businesses to focus on, well, business. For example, a two year holiday from company filings, corporation tax, National Insurance, light or no employment law and similar measures to spare people getting a business going from tax, regulation and red tape. Additionally very small businesses with fewer than five or 10 employees could benefit from a special lighter-touch regulatory regime. Reforms like this would make a huge difference, encouraging more people to take the plunge to set up and grow new enterprises.

 

The Budget recognised SMEs and how important they are to the economy. More can and should be done to help those on the first step of the ladder in setting up their own business.