Small business Q&A: Minister Nigel Griffiths

Mr Griffiths has been MP for Edinburgh South since 1987

Since 1997, more than one and a half million businesses have started up in the UK. They create new jobs and help form the backbone of the British economy.

The government says it is keen to provide greater support for the small business sector by improving the entrepreneurial culture in the UK.

In an e-mail Q&A with BBC News Online readers, the Minister for Small Business, Nigel Griffiths, answered questions on red tape, grants, tax, bankruptcy and other issues.

First instalment of answers from Nigel Griffiths

Second instalment of answers from Nigel Griffiths

Mr Griffiths has been Small Business Minister since 2001 and says he regularly meets small business owners to listen to their suggestions.

PANEL OF EXPERTS E-mail all your questions on starting or running a small business to our experts The panel members Get help with your red tape

Do you agree that the government is doing enough to support entrepreneurs? Are you having problems with too much red tape? Does the UK have an entrepreneurial culture?

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QUESTION
Andrew, England
I attempted to start up a small services based business earlier this year, but was unable to get any assistance from the Small Firms Loan Guarantee scheme due to the list of exemptions.

It seems that unless your business is old industry/manufacturing based, it is almost impossible to get a loan guarantee from this scheme. This view was confirmed when I spoke to various banks - very few of them had managed to get an application for the scheme accepted.

How exactly does this help small business? The entrepreneurial culture in Britain is dying a slow death.

ANSWER
Nigel Griffiths
I'm sorry to hear that you didn't qualify Andrew. Indeed, this was a problem I heard from several businesses. That's why we've improved and extended the Small Firms Loan Guarantee so that more businesses can benefit from the scheme.

Have you any idea how much time is wasted by hopeful entrepreneurs every year having to deal with the results of your government's meddling? Garry S, France

From last April, a whole new range of sectors including retail, catering and motor vehicle repairs and servicing became eligible.

Despite your personal experience, it's worth bearing in mind that since its inception the scheme has been extremely successful with over 83,000 loans guaranteed to the tune of £3bn.

Last year, the average guarantee was around £60,000. The extended scheme should mean another 1,000 loans each year granted under the scheme as more businesses are now eligible.

QUESTION
Garry S, France
If the UK is such a wonderful place for small business under New Labour, why are so many companies going under? Have you any idea how much time is wasted by hopeful entrepreneurs every year having to deal with the results of your government's meddling?

When I had a small company in the UK, I spent up to 20 hours a week reading and dealing with rubbish sent to me by one government department or another.

If I had not dealt with it, I would either have been fined or had to deal with on-site interrogations from busy-body bureaucrats. Why can't the government take a hands-off approach to business?

ANSWER
Nigel Griffiths
Latest insolvency statistics from the Department of Trade and Industry (DTI) show that there were 3,843 company insolvencies in England and Wales during the second quarter of 2003 - a decrease of 6.9% on the same period a year ago.

I recognise that it can be frustrating spending time filling in forms when you could be sourcing new business Nigel Griffiths Small Business Minister

But remember that businesses close for a variety of reasons - for example, from late payment or lack of customers - as well as from economic causes.

We've got the lowest interest rates and inflation rate in this country for over 40 years - conditions that are great foundations for starting and running a business.

Barclays' latest survey shows that in the first quarter of 2003, business start-ups were up 12% on the same period in 2002.

Barclays' survey also notes that only a minority of businesses close as a result of financial distress, and that many closures reflect a positive choice to return to salaried employment or enjoy the fruits of many years' work in retirement.

I recognise that it can be frustrating spending time filling in forms when you could be sourcing new business. Let me give one example of where we're working to reduce the burden.

When I talked to entrepreneurs, many mentioned that VAT was their biggest bugbear. That's why we've cut VAT red tape with the flat rate scheme, where businesses just pay a flat rate based on turnover, rather than having to spend time accounting for every single item. Three quarters of a million businesses are eligible for this scheme which can save them up to £1,000 a year.

As for interrogations and fines, we're working to make inspectors more understanding of the problems people may face, by reforming the VAT penalty system so that businesses are first offered support and advice before incurring penalties.

It's a myth that the bureaucratic burden has increased Nigel Griffiths Small Business Minister

We also announced in the last Budget further action by the National Statistician to minimise the load of statistical surveys.

QUESTION
Michael Agate, UK
Why has the government still not raised the audit threshold from £1m to £4m plus, like many other EU countries? This has been an issue now for three or four years and could help many small but growing businesses.

ANSWER
Nigel Griffiths
It was this government that exempted the majority of small companies from the requirement to have a statutory audit of their accounts by almost tripling the audit exemption threshold from a turnover of £350,000 to £1m in summer 2000.

In the Modernising Company Law White Paper, published in July 2002, we said we would assess the impact of the last increase before deciding whether the remaining small companies should be exempt from the audit requirement. Research indicates that raising the audit exemption threshold will benefit small companies.

The White Paper also announced the government's intention to increase the thresholds defining small companies to the maximum permitted under EU law which, at the time, was £4.8m (expressed by turnover). The EU maximum has recently been increased to £5.6m and the small company threshold will be increased to the new maximum.

We are currently seeking views on whether the audit exemption threshold should also be increased to £5.6m. The consultation closes on 3 October, 2003 so there's still time to make your views known.

QUESTION
Tim Hedges, UK
The bureaucratic burden on small businesses has risen inexorably since Labour came to power. Do you think there is any chance of reversing this trend or will it continue to increase?

ANSWER
Nigel Griffiths
It's a myth that the bureaucratic burden has increased. Of the 3,849 statutory instruments - sometimes described as "new regulations" - issued last year, 95% had little or no impact upon business, such as implementing temporary local speed limits or traffic restrictions.

Do we need to change the culture so that a failed business does not carry such a social or legal stigma? Ian Pearson, UK

Other statutory instruments were issued for preventing terrorism and increasing pensions. People tend to get hung up on numbers and automatically assume the regulatory burden has gone up.

A far better indication is to look at the statutory instruments that impose a burden on business. Since Labour came to power this has actually decreased. In 2001, only 3% placed a burden on business compared to 1996 under the Tories when it was 7%.

We've also exempted a lot of small businesses from regulations, such as providing employee access to stakeholder pensions or balloting their workforce for the right to have union recognition.

But don't just take my word for it.

The Economist Intelligence Unit's study ranking of 60 countries on their attractiveness for start-up businesses - awarding points for low levels of red tape, favourable tax regimes, flexible labour markets, open financing system and modern infrastructure - placed the UK joint second after the Netherlands, and ahead of the US.

Such studies conclude that the red tape burden in most other countries is far tougher than in the UK.

But that doesn't stop me seeking to improve things here and encouraging more people to start and grow a business. I know that complying with regulations falls heavier on small businesses and so we're making sure that where we do regulate, we do it with a light touch.

QUESTION
Paul Harvey, UK
Why, if there really is political will to support small businesses, is it so difficult for small businesses to supply either central or local government?

I am a director of a small privately owned company supplying internet and telecommunications services to a long list of blue-chip organisations in the UK. Many of these clients are household names, and yet the barriers which are encountered when attempting to supply government departments or institutions are often insurmountable!

ANSWER
Nigel Griffiths
When I became Small Business Minister I made it one of my priorities to tackle this, as I know the frustration small businesses faced to get public sector business.

One of the first things I helped implement was reducing the requirement for businesses to produce three years' accounts before they could bid for tenders, allowing small and new companies a chance to compete.

We've made other significant inroads, such as publishing Tendering for Government Contracts, providing small businesses with contact details for tenders in all the major government departments.

We've also set up www.supplyinggovernment.gov.uk which includes a "contract finder" to help small businesses access public sector business.

I know there's more to do. That's why we're operating two pilots - the results of which will inform a national roll-out - looking at better advertisement of lower-value contracts, standardisation of pre-qualification requirements, training for SMEs and working with prime contractors to open up opportunities throughout the supply chain.

QUESTION
Ian Pearson, UK
I have several questions:

• In an economy that is relying less and less on traditional sources of wealth like manufacturing, does the Minister feel that specific tax breaks and grants to small business with potential are appropriate?

• Do the laws on bankruptcy in the UK need to change? Do we need to change the culture so that a failed business does not carry such a social or legal stigma, as is the case in the US?

• What are the threats and opportunities to UK small business from closer integration into Europe? How can the UK be protected from the newer EU members such as the former Soviet Union Eastern European states, where skills are high, but costs are low?
  

ANSWER
Nigel Griffiths
I would argue that manufacturing is still important, Ian. Manufacturing is key to UK prosperity. It comprises a fifth of our economy, employs four million people and accounts for over half of our exports. Of course, manufacturing has faced difficulties recently. But because of its importance to the economy, I believe assistance where appropriate is valid.

One of the major challenges manufacturing faces is increasing competition from goods produced in lower wage economies, which you allude to in your third question.

Rather than be prevented from starting up a new business for three years, [bankrupts] will be able to do so after 12 months Nigel Griffiths Small Business Minister

To compete, it needs to move away from labour intensive manufacturing to high-skill, hi-tech, high-value manufacturing. That's why we're helping businesses to compete through assistance from the Manufacturing Advisory Service, improved R&D tax credits and money for skills training.

As for specific DTI grants and assistance for businesses, firms told us that they thought there were some valuable schemes, but that they found it difficult to access the right type of support among the many available to them.

That's why we're currently revamping our business support products, reducing the number to about 20 - a smaller number of schemes that are better designed to drive up productivity.

On bankruptcy, we are in fact changing the laws on personal and corporate insolvency to reduce the stigma associated with bankruptcy. The personal insolvency changes, which come into force in April next year, mean bankrupts who are not reckless, irresponsible or dishonest will be released from restrictions after a maximum of 12 months, rather than the current three years.

Plus, they will not be barred from offices such as being a school governor or local councillor.

The corporate insolvency provisions, coming into force on 15 September this year, aim to promote a rescue culture, facilitating the rescue of viable companies wherever possible.

They also abolish Crown preference, where the taxman had first bite of the cherry when a business has failed.

Turning again to Europe, independent estimates show that UK GDP will increase by up to £1.75bn from EU enlargement, so the opportunities for increased trade for small firms are fantastic.

It will also mean a level playing field for British businesses as the new Member States become subject to the same EU standards on things like consumer protection and state aids.

Labour costs will also rise in these countries as living standards catch up with the EU. So concerns that UK firms will lose out are, I believe, unfounded.

I was in Poland with the head of the British Chambers Of Commerce, who is in no doubt about the businesses opportunities in the new member countries.

I'll leave the last word to the CBI's Digby Jones who said earlier this year that Britain is definitely the best place to do business compared with the rest of Europe.

QUESTION
Ron, UK
Why won't you change the bankruptcy laws to make it easier for entrepreneurs to create new businesses?

ANSWER
Nigel Griffiths
As I mentioned in my answer above, we are changing the laws to reduce the stigma of bankruptcy and allow responsible entrepreneurs to create new ventures.

Rather than be prevented from starting up a new business for three years, they'll be able to do so after 12 months. More information on the changes is on the website www.insolvency.gov.uk/reform.htm.

QUESTION
Michael Tott, England
I have just started up in business and have found it very difficult to get some information, or to even know where to look for information.

It would be useful to have one central point that will give all the necessary and up-to-date information on where to go to for advice. Could or should this be something offered by the government, either in a pack or on the Net?

ANSWER
Nigel Griffiths
You can go to Business Link for one-stop help and advice. Go to their website www.businesslink.org to find your local outlet.

We've also just produced a publication, Michael, that will help many people like you when they're starting out. Our new "No-Nonsense Guide" is aimed at prospective entrepreneurs and those who have recently started up, providing a clear and simple insight into what they need to know from the legal aspects of setting up, to issues that might affect a growing business.

The guide includes help and advice on:

• how to form a business
• the pros and cons of the different business structures and sorting out tax, national insurance, VAT and business rates
• sales and marketing, including advice on terms and conditions of sale and selling and marketing electronically
• how to protect new ideas and obtain patents and trademarks
• how to access government grants and other support
• complying with health and safety legislation
• and a step-by-step guide to taking on your first employee.

You can get hold of the guide by calling 0845 600 9006 or by visiting www.businesslink.org.

QUESTION
Benjamin Gower, UK
Has the Small Business Minister ever run a small business of his own, if so, would he agree that one of the largest problems facing small businesses is one of the government's creation - red tape?

ANSWER
Nigel Griffiths
I founded SCKA, which administers building projects with a budget of over £1m and employs 15 people. And as chairman of the Housing Committee, when I was a councillor in Edinburgh, I had responsibility for the allocation of million pounds worth of budgets so I have experience of balancing the books.

As I mentioned earlier, I understand that small business owners sometimes find compliance more difficult than big companies, but we're working to reduce the burden, and we should all recognise that not all regulations constitute "red tape". See my answer above to Tim Hedges' question.

QUESTION
Charles Coburn, UK
How do we apply for the Small Firms Loan Guarantee? We commenced trading in February 2003 as an insurance intermediary and currently have a number of large schemes commencing. We would like to expand to meet client needs by employing more people.

ANSWER
Nigel Griffiths
You need to approach one of the approved lenders and apply through them.

You can find out more about the Small Firms Loan Guarantee at www.sbs.gov.uk/sflgs, including a list of the lenders currently involved in the scheme.

As I mentioned earlier, the scheme has seen some improvements, and there's more good news for service companies like yours as the maximum turnover limit for the service sector has increased from £1.5m to £3m per year.

Also, the single guarantee rate for younger businesses like yours is now 75% rather than the previous 70%.

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