UK in bottom half of G20 in providing a supportive environment for young entrepreneurs

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London, 18 October 2011: The UK is losing ground to other G20 countries in being the place to set up and grow new businesses.

A major report commissioned by EY has found that the UK is 14th in the G20 in providing the right support to help entrepreneurs get started and build fast growth businesses. While many entrepreneurs (76%) believe that there is an entrepreneurial culture in the UK, it is not as strong compared with the US (88%) and many of the emerging economies such as India (98%).

The EY barometer, which analyses entrepreneurship among G20 countries, found that 76% of UK entrepreneurs are positive about the culture of entrepreneurship. Other positives for the UK were having some of the lowest start-up costs compared to the G20 and the time taken for companies to start trading – 13 days in the UK compared to an average of 22 days in the G20. The survey of 18-40 year old business leaders also found that hit television shows like Dragon’s Den and The Apprentice, education, and some minor tax concessions, have boosted the image of entrepreneurship in the past five years.

However, disappointingly, the UK at 76% was ranked 14th overall among the G20 countries, with businesses in Canada and the US (88%), China (92%) and India (98%) feeling their culture was more inspirational for entrepreneurship. The UK also ranked below Turkey and was equal to Italy. In contrast entrepreneurs in France were less likely to feel cultural support (24%), followed by Russia (50%) and Japan (66%). In the EU as a whole, 64% of entrepreneurs felt supported, compared to 80% in rapid growth markets. In the UK, 35% of entrepreneurs felt failure was a barrier to future success compared to only around 10% in China and the US.

The report, ‘Entrepreneurs Speak Out’, released by EY ahead of the G20 Young Entrepreneurs Summit in France, also found significant challenges remain for funding, innovation, and incentives in the UK. In particular, the value of SME listings on the Alternative Investment Market dropped by 65% in five years, while 72% of UK entrepreneurs found access to funding difficult.

EY partner Bob Forsyth, Head of UK SMEs, said: "This is a wake up call for government. We pride ourselves on being business friendly, but we are in fact losing ground to most of the G20. Government needs to accelerate plans to improve tax incentives and reduce the regulatory burden, if we are to regain the advantage with our aspirational business leaders of the future.”

“Future business leaders are in many ways positive about the enterprise culture in the UK. However it is clear there is a great deal of work necessary to ensure that the entrepreneurial culture reaches the levels enjoyed by the US, India and China. The continuing problems of bank lending, dismal IPO appetite, and insufficient tax incentives are limiting future growth, making it harder for entrepreneurs to invest and create jobs. There needs to be further support for SMEs looking to drive exports - the likely most powerful driver of UK business and employment success.”

The UK picture and key recommendations
The report highlights five key pillars to build a successful enterprise environment in the UK and the G20: “entrepreneurship culture”, “education and training”, “access to funding”, “regulation and taxation”, and “coordinated support” between the different public agencies involved in facilitating and supporting entrepreneurship within a country.

1. Construct a solid entrepreneurial culture – The report recommends further improvements to acknowledge entrepreneurs’ strong contribution to innovation and job creation, while creating a culture that does not stigmatise failure. The survey found two-thirds of UK entrepreneurs said encouraging innovation is a top priority for regulatory policy, supported by evidence that the number of patents registered has been in steady decline in the past five years. The report found that around 35% of UK entrepreneurs felt that fear of failure was a barrier to future projects, compared to 10% in the US.

2. Education and training: a broader scope is needed – More than half of UK entrepreneurs saw improvement in specific programmes at universities and business schools, showing a higher perception than the rest of the mature markets. The report suggests entrepreneurship education should start as early as primary schools and continue through to universities and business schools, while it should also be supplied to those moving from corporate roles to their own ventures.

3. Access to funding: it is vital to tap into diverse sources – Access to funding continues to be the most significant challenge for the creation, survival and growth of successful entrepreneurial companies. The report notes that while the UK Government should support bank lending for entrepreneurs, they may benefit from turning to other sources of funding for start-ups. Funding from venture capital for instance has increased by 62% in terms of the sums of equity invested between 2005 and 2010.

4. Regulation and taxation: good progress, but regulation can improve to encourage innovation – Two-thirds of respondents thought there were not enough tax incentives for starting up a new business in the UK, and 82% viewed this as a measure that would have a high impact on long-term growth over the next three years. However, the start-up costs are among the lowest of the G20 business, while it takes a UK company only 13 days to start trading, compared to an average of 22 days in the G20. Less time is spent on tax issues than in other mature markets (110 hours per year) compared with the mature market average of 197 hours in 2011. The most impactful incentives are clearly targeted at encouraging innovation and ensuring the impact is regularly measured.

5. Coordinated support: time to team – Government agencies, business incubators, university resources and training programmes have clearly improved their level of support in the last five years. But entrepreneurs expect them to better coordinate their efforts to unlock greater entrepreneurial activity. 60% of entrepreneurs in the UK feel that these programmes are poorly coordinated. They should particularly focus their support for young generations of entrepreneurs and to help them expand internationally.

Bob Forsyth said, “Entrepreneurs have a vital role to play in helping our economies to turn the corner. However, one of the most common barriers to future growth is the lack of funding. It is amazing to me that entrepreneurs and in particular, young entrepreneurs are not supported and acknowledged enough for the critical role they play in job creation and generating innovation. They clearly need more support and attention in fiscal and government policy.”