Analysing how the latest budget affects the UK entrepreneurial ecosystem
Chancellor of the Exchequer Philip Hammond’s Autumn Budget acknowledged that “entrepreneurs must be at the heart of dynamic economy” and that they are the “real engine of growth”. With a nod to Brexit, he said Britain needed to show it was “open for business”, but what were the substantial boosts for entrepreneurs in the budget?
The annual investment allowance, which is an incentive to invest in new and used machinery, increased from £200,000 to £1 million. It means up to £1 million can now be deducted from taxable profits for two years after the machinery is bought. In addition, Hammond introduced a tax relief for non-residential structures in the form of a 2% capital allowance.
The budget extended start-up funding – which is available to small businesses through the British Business Bank’s start-up loans programme – to 2021. It also pledged an additional £200 million if the European Investment Fund withdraws funding from the UK after Brexit in March 2019.
Entrepreneurs’ tax relief was tightened but not abolished as had been anticipated by some analysts. Under the relief, business owners pay 10% rather than the usual 20% rate when they dispose of all or part of their business. From 2019, owners must hold a business for two years, up from 12 months, to qualify.
Julian Birkinshaw, Professor of Strategy and Entrepreneurship at London Business School, said there were two elements Philip Hammond must consider to foster UK entrepreneurship. He welcomed the support for the British Business Bank but also called for more to be done to increase ‘patient capital’, or longer term investment.
“I would like to see the government put more emphasis on this type of capital – perhaps through well-designed tax breaks,” he said.
“The other side of the coin is ‘human capital’. Silicon Valley attracts the best entrepreneurs and the best venture capitalists. Many British entrepreneurs have actually moved to California in order to build their fledgling businesses.
“So government support for the development of people in entrepreneurship would be extremely useful,” continued Professor Birkinshaw. “This means more courses in entrepreneurship at universities, development programmes for venture capital investors, better opportunities for scientists to develop their technological innovations into business breakthroughs, and so on.”
While not addressing the flow of entrepreneurs to and from the UK, Hammond did reference the issue by allowing US, Canadian, New Zealand, Australian and Japanese passport holders to use e-gates currently only available to European Economic Area nationals.
“Entrepreneurship is the lifeblood of business growth,” said Professor Birkinshaw. “There is only so much growth you can get out of established companies, so for the UK’s economy to grow we need more start-ups and we need more start-ups to become gazelles or unicorns.”