04 September 2014

Removing red tape with the Home Business Initiative?

Will the government's new measures to support home businesses really support these small firms and cut red tape or do they need more substance?

With 59% of all small business enterprises being home-based, the government has finally recognised that it needs to cut legislative red tape to support the creation of new home businesses. 

With more than 500,000 businesses registering with Companies House in 2013 and the number of new companies this year reaching a five year high, it’s no wonder that the government hailed small businesses as vital to the UK’s economy. While the focus has mainly been on entrepreneurs and high-growth start-ups, it has recently turned its attention to home businesses.

The drive to support home businesses

Data from the Department for Business, Innovation and Skills (BIS) and Enterprise Nation has revealed that this is not a group to be ignored.

  • There are almost 3 million home businesses in the UK [Tweet this]
  • Combined, they contribute more than £300 billion to the economy [Tweet this]
  • Around 70% of new firms are started at home [Tweet this]

Enterprise minister Matthew Hancock announced a Home Business Initiative on 15th August, which promises changes to tenancy legislation, making it easier for people to run a business from a rented property. It is also updating guidance to clarify the circumstances where home workers would need to apply for planning permission or pay business rates. Most ‘kitchen table start-ups’ do not need either.

The government also unveiled its Business is Great website, earlier this year. This offers support and advice for both setting up and growing a business.  While currently in beta mode, the site covers advice and links to help you with recruiting staff, exporting for the first time and the regulation you need to be aware of. 

How supportive is the government?

The changes have been largely welcomed by home business and support organisation alike, particularly the changes to tenancy contracts. According to the FSB, 20% of their members say the tenancy clauses that restrict working from a rented property are an issue. 

However, previous research found that that as few as 20% of owners checked with their mortgage lender or landlord before starting to work from home.

The more cynical among us have also argued that this announcement is more hot air than substance, as the clarity on existing guidance is really just common sense. For example, if you can use your laptop recreationally from home, why would you need to get planning permission to use the same device for business purposes?

The BIS estimated that if just 10% of home businesses took on an (extra) member of staff, up to 300,000 extra jobs could be created. However, the new measures announced are unlikely to encourage employee recruitment, as firms employing staff to work at their premises still have to pay business rates. Business rates are also still due if the enterprise sells goods or services to their customers directly (i.e. not via post).

The Centre for Entrepreneurs has also questioned how much the government supports small businesses. Using data from the Spend Network, it is campaigning for local authorities to buy more from small businesses, or ‘spend small’. The index shows the disparity between councils, with Stoke on Trent City Council spending 21.7% with small firms, compared to a mere 4.33% by Sheffield City Council.

This week the government is has also come under fire by tech entrepreneurs, with the Coalition for a Digital Economy (Coadec) making recommendations to encourage the growth of technology start-ups. Their manifesto includes suggestions such as tax cuts for entrepreneurs and improving access to talented individuals from other countries.

So, while the government has made steps to clarify current regulations, and has improved access to funding, there is still plenty of room for improvement. Changes to legislation and tax would be beneficial for home workers as would further support for businesses who have outgrown their base at home.