All this swap and change is bad for SMEs

SMEs face uncertainty.

Last week I sat for an hour or so with a couple of entrepreneurs. They have both founded more than one business and are both heavily involved in helping to promote the UK’s start-up and small business economy, one through Start-up Britain and the other through Young Brits and the G20 Young Entrepreneurs’ Alliance. As often happens when you talk to entrepreneurs, the discussion turned to the relationship between government and business and the role government plays in promoting a better environment for those running a business. Both were clear that the UK has a long and noble tradition of an economy built on small business, with several references during the conversation to Napoleon’s description of a "nation of shopkeepers".

The consensus, as it often is, was that government’s role is to create the conditions for start-ups and existing businesses to grow and thrive and then get out of the way and let them get on with it. "We need an end to this constant political need to announce new initiatives," said Alex Mitchell, co-founder of Young Brits. In short, both wanted a bit less government. In fairness, the stated ambition of most politicians for the last 20 years (and maybe longer) has been reducing red tape. This chimes well with entrepreneurs, but all the talking has hardly resulted in less regulation. The current government has made a lot of its commitment to red-tape reduction. It has appointed two "entrepreneurs in residence" at BIS, launched a Red Tape Challenge and promised that all new legislation will be introduced on a "one-in, one-out" basis.

It was interesting last week to see a number of legislative announcements within a few days of each other, all purporting to make life easier for those running businesses. At least two of them will impose new reporting requirements on some or all listed companies. What’s given with one hand in terms of easing the burden on businesses seems bound to be whipped away with the other.

The Enterprise and Regulatory Reform Act is intended to make life easier for those running small businesses and in large part it has been welcomed as achieving that by those it aims to help. But as is often the case, simplification is complicated and the new rules and regulations surrounding areas such as settlement agreements will require entrepreneurs to put in time and effort to understand them. In the long-term there may be benefits for those running SMEs, but in the short term the time pressures may increase. The entrepreneurs last week were clear the best red tape reduction policy of all would be for the government to just stop doing things. A moratorium on any new policy announcements would be the best initiative.

Less welcome in some quarters (judging by reactions to our story on it) was the announcement of changes to the Companies Act requiring listed companies to divulge information in their annual reports on subjects such as diversity (giving the breakdown of the number of men and women on their board, in senior management positions and across the company as a whole), the company’s greenhouse gas emissions and human rights, as well as a new strategic report that focuses on the business model, strategy and risks to replace the existing business report. Even those who welcomed some of these changes (partly out of desire to see this narrative part of company reports be more useful) reacted negatively to the tight timetable imposed, with the changes due to come into force from 1 October, 2013.

Elsewhere, the EU was also trumpeting simplification while adding in a degree of complexity for some companies. The abolition of mandatory quarterly reporting was welcomed by most, but the requirement for country-by-country reporting in certain sectors was less welcomed by those affected, although it will please those keen to see greater transparency in reporting. The new accounting framework also reduces reporting requirements on small and micro businesses, although the category of micro business is a new addition to the regulations.

These are just some of the recent changes announced and all from last week. The net result of all this change is uncertainty. One thing that those at the sharp end, running businesses, talk about is the need for greater certainty. The confidence to invest in their businesses, which is ultimately what will be behind any sustained economic recovery, depends on it. Perhaps it is time for the politicians to leave business to just get on running and growing their businesses.

This piece first appeared on economia.

Photograph: Getty Images

Richard Cree is the Editor of Economia.

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump