Budget 2002: The prospects for start-ups, by Cliff Stanford

This year's budget will once again try to promote entrepreneurship but will it make any difference? Cliff Stanford, the founder and one-time boss of Demon Internet and now boss at Redbus, won't be holding his breath when the Chancellor gets up to speak...

It is expected that this year's budget will see Gordon Brown reviewing tax measures to identify additional ways of raising money. The NHS, deeply under-funded at the moment, is most likely to be the recipient of public funding. For businesses, it is less straightforward.

Without a doubt, alterations are needed in terms of tax credits to encourage research and development and also to improve the corporate tax regime for entrepreneurs. I would also like to see changes made to tax measures on shareholding, reinvestment, corporate restructuring and intellectual property (one of the fastest growing areas across many industries today).

Yet I believe these issues will not be addressed in this budget, just as investment issues in general will be neglected. Currently, investment is at the lowest level I have ever witnessed in my working lifetime.

While the budget is probably going to have an impact on the residential marketplace, it is much less likely to provide economic support for people seeking to start-up their own business. Despite its shiny facade, we have a socialist government that continues to fail to understand that start-ups (even those that go under) are what keep the UK's economy alive. The result is that finding capital for a new business venture is now nigh on impossible.

There are two possible options that could rectify this situation. First, were the Chancellor to abolish capital gains tax for everyone, it would be a significant incentive to the VC marketplace in encouraging it to take a risk with more new business. It is a fact that while there is no investment, there will be no start-ups.

Second, I believe the Chancellor should offer income tax relief on cash invested into new companies which is then repayable when the company grows. This measure would go a long way to instilling confidence in those with the acumen, the business concept and the foresight to see where their revenue will come from - but are simply lacking the initial funding to get off the ground.

Consequently, country productivity will not be a focal point for the Exchequer in this budget. In neglecting the vital role played by start-ups in boosting the UK's currently poor economy, the Chancellor is not only being very short-sighted but his solution is likely to be along the lines of finding backdoor ways to increase taxation - which will not improve the economy.

It is a regrettable attitude, given that the advent of the euro actually represents a wonderful opportunity for investment - while the euro continues to fall in value against the dollar, sterling should continue to remain strong, which is the best possible position for the UK.

I hope people will not be dissuaded from starting their own companies if the budget does indeed choose to ignore them. I would say to anyone wanting to set-up a business that they need to create a real business model - one based on building or buying something and selling it for more than it cost - to ensure it will be viable.

To encourage funding - despite the almost certain lack of positive tax relief measures in the 2002 budget - this will still be the most important thing to attract investment. Investors will look for a strong, competent management team and if you are unable to show previous success in starting-up a business you must clearly demonstrate how your idea will work and, vital in this depressed economy, bring return on investment.

Governments, as a rule, tend to make significant changes in the budget in response to what they perceive are the most important issues that need to be tackled - and this year will not be the year of the start-up.

Cliff Stanford is the founder of Redbus Investments and a serial entrepreneur. He is best known for setting up Demon Internet, now part of Thus following its sale in 1998.

For more on start-ups and their prospects, see our current Hot Topic: Start-up 2002
http://www.silicon.com/start-up2002