Barriers to business: Where does IR35 rank with the Minister for Small Business?

In the second part of our interview series with Nigel Griffiths, the Minister for Small Business, UKTECH explores the main barriers to setting up and growing a small business in the UK and asks the Minister about IR35's ranking in the list of concerns presented to him by industry representatives.

UKTECH asked the Minister what he saw as being the main barriers to the growth of small businesses in the UK.

Mr Griffiths replied: "The first major barrier is not knowing where to go for advice, which is why we want Business Link to be on everybody's lips. Business Link offers good advice and help with business plans and other things that people starting businesses too often don't think about.

"The second major factor is that there's a complex about failing in this country that you don't have in other countries like America. In the US people are far more interested in businessmen whose businesses have collapsed and they crawled back out the gutter to reform or start another one. As John Kerry, the US Small Business Senator, said: "It's not how you fall, it's how you pick yourself up." In the UK, we almost will people to fail, like David Beckham, a classic example. First he was 'lamed' by the tabloids and now he's a hero. If you're not a genius like Beckham, the negativity can be pretty off-putting and that's one of the reasons why we're changing the law to get people out of bankruptcy and out of jail quickly and back into business."

"IR35 is having absolutely no effect on small businesses" - Nigel Griffiths

UKTECH: What sort of entrepreneurs and small businesses are developing best at the moment and what are you doing to help less rapidly developing groups?

Mr Griffiths: "Certainly for my generation, business has been something that men do and not women. That has been part of the generally white, male networking clubs, and we're trying to break that down. In America, half of all new businesses are started by women but in the UK it's only half that rate.

"In terms of ethnic groups, we have some terrific Asian start-ups in the UK, but we don't have enough terrific Caribbean start-ups. My view on this is: we are the fourth biggest economy in the world and in order to keep that position we must go tapping for all of the talent throughout society in all of the regions.

"We cannot afford to potentially turn down the child that is potentially going to invent the cure for cancer and neither could the bio-medical companies, or other sector specific companies, afford for them to drop out of school because they are in a cycle of deprivation. That's why we're focussing on small business growth regionally and on gender and ethnic issues. We don't want anyone's talents to be lost because we simply cannot afford the loss to society."

UKTECH: Your example about not holding back the child who could find a cure to cancer is like the argument put forward by already successful entrepreneurs who have founded great organisations or have otherwise invented or created something, but have publicly said: "If the Government had introduced IR35 at the time I was setting-up, I would never have got to the stage I am at now and people who are now in the same position as I was when I started cannot even start-up under such tax regimes?"

Mr Griffiths: "I don't buy that by and large, because IR35 was the exploitation of a tax rule that meant companies helped people to avoid paying tax, with society bearing the cost. The Government was quite rightly not willing to pay it. I don't buy your point of that being an outcome of introducing IR35 at all. We are the fastest growing economy in the world and there's no sign of IR35 impacting on that."

UKTECH: So you don't think we're in danger of losing or sending away, say the next Microsoft, because of IR35?

Mr Griffiths: "No."

UKTECH: What effects do you think IR35 is having on small businesses?

Mr Griffiths: "Absolutely none. The Federation of Small Businesses (FSB) carried out its bi-annual survey of businesses using Strathclyde business school after September 11 last year and it could not have been more complete. Small business confidence was shown to be up from its position two years ago across many sectors, including agriculture. The results surprised the FSB to such an extent that even with 18,000 samples, analysed by a university business school, I had to ask John Emmins, the Chairman of the FSB, whether he believed the results and he said: "Well, we have to."

"I do have a particular interest in IR35 because of my constituents, but did it have to be done? Yes. Though it was painful for some people, the impact on the economy would have been worse."

UKTECH: Do you think it went too wide?

Mr Griffiths: "Well it hit the 90 per cent it was supposed to. I'm not sure that IR35 ever encouraged or discouraged entrepreneurship but it made the Chancellor's bite a bit bigger."

UKTECH: Organisations including the British Chambers of Commerce; the Confederation of British Industry; the Federation of Small Businesses; and the Institute of Directors have all opposed IR35 in front of the public, but don't seem to have raised it with you, the key Government decision maker for small businesses in the UK?

Mr Griffiths: "Correct. I don't believe in spin, but if you go to these organisations for a comment, they'll give you a comment. They're quite entitled to do that and to say what they think, but I know what they've raised with me and IR35 hasn't even been in the top 20 concerns. In fact, I can't remember the Chairman or any of the speakers raising it at the FSB conference at Aviemore in Scotland this year, which I spoke at."

The FSB's annual Aviemore Conference in 2002 featured speeches by Mr Griffiths; Helen Liddell MP, Secretary of State for Scotland; Charles Kennedy MP, Leader of the Liberal Democrat Party and Philip Hammond MP, Shadow Minister for Small Business.

In tomorrow's interview excerpt, UKTECH asks the Minister about overseas issues, including fast track visas and outsourcing to India as well as EU legislation, its suitability for the UK and the effects it is having on small British businesses.