2011 in review: A detailed analysis of what the government did for small businesses

Prime minister David Cameron set the tone for the year when he told entrepreneurs at the launch of the Red Tape Challenge in April: "I want us to be the first government in modern history to leave office having reduced the overall burden of regulation, rather than increasing it.". Throughout the past year, the coalition government introduced a string of initiatives, from cutting red tape to simplifying tax regulations and employment reform to boost the UK as an entrepreneurial base. BusinessZone.co.uk looks back to see what changes were introduced and what exactly they have achieved.

Red tape reduction

For many business people, employment law is a specific barrier to growth because it puts them off taking on new employees. To kick off the year, the government launched a consultation on reform of the employment tribunal system. By October, the government confirmed that it would extend the qualifying period for unfair dismissal from one to two years, as well as announcing a review of the tribunal rules and procedures.

November’s sickness absence review continued this theme by proposing reforms on the rules for dismissing long-term sick workers and tax breaks for employers who help those workers return to work.

The Red Tape Challenge asked employers to comment on particularly onerous regulations and started with the retail and hospitality industries. The government’s second statement on regulation reform, published in September, claimed its one-in, one-out reform strategy program resulted in net reductions in regulatory costs from six out of 10 government departments.

Diana Bruce from the Chartered Institute of Payroll Professionals investigated the government’s red tape reduction initiatives for AccountingWEB and described the proposals as a "promising start". However, the British Chambers of Commerce attacked the claimed £3bn in cost savings, arguing that the government had imposed £45m in additional costs on businesses during the first six months of 2011.

The chancellor announced in his Autumn Statement that employment law and health and safety reforms would be tackled in the next phase of the Red Tape Challenge.

The year in red tape ended when we launched a special forum on our sister community UK Business Forums allowing our members to tell the Prime Minister's Office about their experiences of the regulation surrounding creating a new business model. So far, the forum has attracted over 100 comments and more than 7,000 views. We will also be holding an exclusive live web chat with a senior government official in January so please do get involved.

Business support

There's one subject that we always know will attract attention whenever we talk about it and that's Business Link, the government's flagship business support service in England. The service has long been the marmite of the entrepreneurial world - loved by many, hated by many. 

2011 was a big year for Business Link as its face-to-face services were wound up.

In January, the government confirmed, and our third most popular 2011 story reported, that the one-on-one elements of the support organisation would close by 25 November and be replaced by an enhanced website and telephone helpline and a new mentoring network staffed by thousands of volunteer business mentors.

A debate raged for many months, especially in the comments sections of BusinesssZone.co.uk, as entrepreneurs pondered over exactly what the new mentor scheme would look like. Former Dragons' Den judge Doug Richard answered the critics defended the concept of unpaid mentorship in an exclusive video interview with us and we even managed to have a video chat with enterprise minister Mark Prisk about the subject. 

The speculation ended on 4 March when the government finally unveiled the new mentoring network and revealed it is funded by the British Bankers Association.

It's still too early to measure the impact of MentorSME, the name given to the project, although the government claims thousands of mentors are already available. The 25 November closure date for Business Link has also passed and we're still waiting to hear real case studies from users of the new-look website and other telephone and online offerings.

We can't write about small business support in 2011 without mentoring Startup Britain. Although not a government funded support service, the reaction to the launch of the scheme, backed by David Cameron and other senior ministers, was huge and controversial. Given the large image of the prime minister on the home page of the Startup Britain website, many believed it to be a Whitehall funded PR stunt rather than the 'for entrepreneurs, by entrepreneurs' scheme that it actually is. We interviewed some of the founders on camera at the launch.

BusinessZone.co.uk even became involved in the controversy with one Twitter user accusing us of defending the project because we had paid to have our logo on the site. We didn't. Our site was one of several small business communities independently recommended by the founders of Startup Britain. 

The #StartUpBritain Twitter hashtag stream was filled with tweets for many days following the launch and in March we asked business secretary Vince Cable what he thought. The controversy has now calmed down and the scheme has carried out many high profile activities including a bus tour over the summer in which we took part. 

Co-founder Oli Barrett rounded up the first six months of StartUp Britain on BusinessZone.co.uk in October and he and his fellow founders have promised bigger things to come in 2012.

2012 will be an interesting year for the business support world and we will watch intrigued to see how the new Business Link regime and StartUp Britain project sit together and whether the entrepreneurs who really do need support actually get it from either or both. 

Access to finance

In reality, access to credit is probably the issue that exercises most small businesses, and there was no shortage of initiatives to do something about it, starting with the Project Merlin deal in February under which the high street banks would free up £76bn in lending for small firms. But after three months, the scheme was already falling more than 20% short of its £19bn-a-quarter target. By November, the government renewed its efforts with more finance initiatives for small businesses, including:

• A £95m government Regional Growth Fund (RGF) backed with £500m from RBS, NatWest and HSBC.
• A £21bn National Loan Guarantee Scheme to lower the cost of bank loans for businesses with turnovers up to £50m.
• Extension of the Enterprise Finance Guarantee (EFG) from January 2012 to include businesses with up to £44m annual turnover. 
• New Seed Enterprise Investment Scheme (SEIS) to be launched in April 2012, offering 50% income tax relief on investments, along with a Capital Gains Tax exemption on gains realised in 2012-13 and then invested through SEIS in the same year.
• Small business rate relief holiday extended for a further six months from 1 October 2012.

But with the backdrop of continuing disappointment with bank lending, BusinessZone.co.uk member 'Eddybee', an adviser to small firms, commented that the government's finance measures needed to be better targeted. "I hope I am proved wrong, but if the government really wants to help the smallest businesses then I can't help thinking this needs to involve equity investment as opposed to bank loans," he said.

Accounting simplification

In the spring, UK and European business ministers announced plans to simplify financial reporting requirements by removing certain accounting requirements for micro companies. The plans included simplified rules for profit and loss account and balance sheet reporting for the smallest businesses. Although firms must still submit simplified balance sheets to Companies House, they will no longer need to file accounts.

Employment minister Ed Davey claimed the move would save 1.5m small British companies up to £300m a year, but the reform was not well received in the accountancy world. On AccountingWEB.co.uk, Steve Collings reviewed the government’s discussion paper ‘Simpler Reporting for the Smallest Businesses’ and argued that the majority of accountants were not in favour of the reforms.

Audits could also be rarer after Vince Cable announced plans to take smaller companies out of the audit regime, which, he claimed would save 42,000 small firms up to £40m per year.

Tax simplification

In March, the Office of Tax Simplification (OTS) called on the Treasury to suspend IR35 or compel HMRC to make changes to its implementation until wider structural reform. However, Chancellor George Osborne announced in the Budget 2011 the government’s plan to keep IR35 as it is but to introduce changes to HMRC administration and create a new IR35 Forum. Simon Sweetman called the retention of IR35 a bluff that was detrimental to small businesses.

“So after all these years of Tory MPs fulminating about the iniquity of IR35, what do they do when they come to power? Nothing,” he huffed.

In the run up to the March Budget, the OTS, the IFS Mirlees review, business lobby groups and AccountingWEB members all urged the government to grasp the simplification nettle and merge income tax and National Insurance Contributions into one basic tax. In what we highlighted as a potential landmark moment in the 2011 Budget speech, Chancellor George Osborne said he would consult on the “options, stages and timing of reforms to integrate the operation of income tax and NICs”.

Throughout BusinessZone.co.uk's 10-year+ history, members have repeatedly called for an end to the unnecessary complexity and administrative burdens that the parallel employment tax regimes cause for businesses and their advisers. But this proved to be another area were early promises failed to bear fruit. By November, Treasury minister David Gauke was promising to transform “the customer experience of the personal tax system”, but refused to countenance the merger of income tax and NICs due to the sudden emergence of the contributory principle as a barrier to merger.

John Whiting, the policy director at the OTS, expressed his disappointment. “I don’t think anyone at the OTS thinks it’ll be a quick process, but if you had the one levy it would ‘solve’ IR35. If you don’t go whole hog, you’ll have to look at other devices,” he said.

HMRC and the government dashed business hopes in yet another area that had caused concern throughout the year. Whether businesses were ready or not, the Real Time Information system for PAYE would have to be introduced in 2013 to pave the way for the new universal credit, HMRC confirmed in November. “There is no flexibility in terms of the ultimate go-live date of RTI,” it said.

As has been the case for so many reform pledges in the past, the status quo proved once again its intractability to change. It is a depressing prospect, but the most likely outcome in the next 12 months will be further compromises and sacrifices to expediency as the tax simplification bandwagon gets bogged down in detail and further consultations on the consultations we've already had.

What are your views on the government's reforms for small businesses in 2011? How have they affected your company? Post a comment below.