Government's drive to boost entrepreneurship on the ropes

Research published by a top London business school shows the UK business start-up sector is in steep decline despite a plethora of Government initiatives designed to encourage growth.

The report by the Global Entrepreneurship Monitor (GEM) showed the number of entrepreneurs seeking to build businesses in the UK collapsed by almost a third over the past year.

The report's authors said regulation was the key factor in the reversal of growth, which it warned is actively turning would-be entrepreneurs away from starting up.

According to the report - the Global Entrepreneurship Monitor 2002 Summary - one in every 18 adults set up their own business in the UK last year - 'the lowest figure since the research began in 1999 and well below some other European countries.'

In Denmark, one in 15 people started their own business; in Norway the figure was one in 11; and in the US, it was one in nine.

Paul Reynolds, Professor of Entrepreneurship at the London Business School and co-author of the study, said: "The Government is having a limited influence on encouraging people into enterprise. It is failing to convince people that it is worth setting up a business and that they will not be unduly penalised if they do."

The Government has launched many incentives over the past 12 months aimed at capturing the imaginations of those wanting to start up their own business.

Last month, a £50 million 'enterprise fund' was announced by the Minister for Small Business, Nigel Griffiths, to help entrepreneurs in London.

The 'London Regional Venture Capital Fund' makes initial venture capital investments of up to £250,000 with follow-on investments up to a further £250,000 for businesses at all stages of development. The scheme is to be extended to the regions via various Government partnerships with corporate backers.

The capital fund identified the so-called 'equity gap' - the chasm small companies can become stuck in when they require smaller levels of investment than are offered by city venture capital firms.

The Government also recently overhauled the business section of its www.ukonline.gov.uk website, to 'demystify the rules and regulations involved in starting up a business.'

Andrew Pinder, the e-Envoy said: "One of the most common complaints among people who start up in business is a lack of information. 'Starting up in business' offers users a clear guide to the main tax and regulation issues and points them directly to sources of official support, such as Business Link."

Yet, whilst the Government is pointing people in the direction of more information about the regulation it intends to hit entrepreneurs with after they start up, there is little evidence the red tape itself is being addressed.

The Better Regulation Task Force (BRTF), the independent body appointed to advise the Government on implementing regulation, is to now undertake a new programme to examine alternatives to regulation.

David Arculus, BRTF Chairman, said: "There is a certain love affair between Whitehall and direct state regulation, but this costs business a lot of money and does not always achieve what the Government hopes. That is why we need to look long and hard at alternative approaches to regulation."

The three main EU institutions - the European Commission; Parliament; and Council - are also aiming to reach an inter-institutional agreement on a better regulation agenda before the end of the year.

The European Commission will conduct extended regulatory impact assessments on 50 of its proposals for 2003, before the end of the month.