Four ways we can make starting a small business in Britain easier

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Not everyone who starts a small business lands on their feet. Some start with a strong network, contracts in the pipeline and a healthy amount in savings. But for others, the smallest barriers early on matter an awful lot more.

Tax thresholds, admin costs and thin start-up support can stop people in their tracks before they really get going. So, how can we make things easier for them?

If we want more people to try self-employment, to stick it out and make a success of it, we need to make those early stages less daunting. There are some practical ways we can do this.

This was the topic of discussion in Downing Street in June, and I was proud to fly the flag for the self-employed in a discussion with the Small Business Minister and other organisations championing the small business sector.

Self-employment is one of the best routes out of inactivity that we have, and also the most overlooked.

In the national conversation about creating jobs, self-employment always gets forgotten about. We hear about big employers and apprenticeship schemes - important parts of the discussion, yes, but not the only ones.

For many people, this way of working could be the best way out of unemployment. We know, for instance, that self-employment has a disproportionately high number of neurodiverse and disabled people working this way, often because it offers the flexibility and control that the traditional jobs market doesn't. It can give them the kind of stability they haven't found elsewhere.

If policymaking treats self-employment as an afterthought, so will the people who might be best suited for it.

But if the government prioritises it, we all stand to benefit. Here’s what that looks like to me.

The simplest change first - let people keep more of what they earn when they’re testing an idea.

The Allowance has been stuck at £1,000 since it was first introduced in 2017. What was once a nice tax-free test chamber for self-employment has been eaten up by inflation.

If we’re going to have a Trading Allowance, let’s make it big enough to do its job properly. In No.10, I asked the Small Business Minister to consider raising it to at least £3,000 - and ideally to £5,000.

A higher allowance gives people more breathing space to test an idea or find their feet in self-employment without worrying about tax admin on modest earnings.

Then there's the cost of creating a company before you know if it has legs.

Companies House has increased its fees recently, which is unfortunate for genuine small business owners who previously enjoyed low fees. The fee hikes were introduced to fund an overhaul of the department, reduce fraud and improve compliance.

For new starters, it’s an upfront cost they could do without. The first 12 months is typically a volatile period for fledgling companies.

But if they can make it past the first year, they’ll have a better chance of sticking it out for longer and be more able to afford the fees in years two, three, four and beyond.

For the people who need the most support to return to work and see self-employment as their best option, the benefits system does the opposite of help.

For those not familiar: the Minimum Income Floor is a feature of Universal Credit for claimants in self-employment. It sets an earnings threshold a self-employed person is assumed to earn each month. It’s usually linked to the minimum wage and the hours they’re expected to work.

But there’s a problem. If their earnings fall below that Floor in a month, their entitlement is not topped up to help them reach it. However, in months where they earn above the Floor, they lose 63 pence from their entitlement for every extra pound they earn.

It’s normal for self-employed earnings to fluctuate month to month, but the system penalises this far too heavily.

For the first 12 months of a claim, the Floor usually doesn't apply. But this is often not enough time for a self-employed business to truly find its feet.

It was suspended during the pandemic as government saw it as a way of supporting the self-employed - we think they should do it again, permanently.

Not every self-employed success story has to be the one that becomes the next unicorn business. Sometimes, success in self-employment can be doing enough to pay the bills until a different opportunity arises.

My final pitch to the Minister was to push for a more positive outlook on young people entering self-employment. At the moment, youth unemployment is high and younger workers are facing one of the toughest job markets in recent history. Finding a job after school or university is far from guaranteed.

But the support on offer from job centres, educational institutions and others is reluctant to guide them towards self-employment.

While I understand the reasons for this historically, the world of work is changing and has already changed. Gen Z have stronger preferences for autonomous work and entrepreneurship than older generations did at their age. We should be clear-minded about the risks, but also the opportunities self-employment offers to them.

For someone not in work, a self-employed career that lasts one year is just as worthy as one that lasts a decade. It is the attempt to build commercial awareness, overcome rejection and develop a compelling product or service that will excite hiring managers.

These are simple fixes that have huge potential to help ambitious new starters make a success of self-employment. But if we want to bring policymaking up to speed with the reality of self-employment today, there is much more to do.

That's why we recently published a discussion paper proposing some major fixes to policies that are holding our sector back.