Can the EU build the right playing-field for SMEs?

Two MEPs look at the environment for small businesses in Europe.

Ingo Friedrich

In Germany, small businesses are known as Selbstständig (self-reliant) an appropriate term which portrays the idea of the small business man as a lone operator who has to work long hours. It is in the interests of member states to create propitious conditions for small- and medium-sized enterprises (SMEs) that foster social and economic mobility. With fair and simple conditions in place, entrepreneurs can be left to get on with their work.

SMEs need breathing space. They feel so oppressed by high taxes, high bureaucracy and impossible standards that they are not able to attain their full potential. They should be given the chance to operate on a level playing-field that does not grant disproportionate advantages to larger companies.

SMEs need to be given signs that they are being taken seriously as an economic force by governments. The latter should invest more efforts into trying to understand the often difficult experiences of entrepreneurs struggling to run small businesses.

Excessive bureaucracy is a big burden for SMEs to bear. Although the European Commission’s better regulation agenda will improve matters slightly for SMEs, more ambitious targets should be set. Günter Verheugen, the commissioner for enterprise and industry, has so far only found 30 to 40 examples of laws that could be abolished. This should be raised to 100-200 EU directives.

No new laws should be introduced at EU level unless absolutely necessary. The Commission’s proposed directive on corporate social responsibility is an extreme example of bad legislation, which will impose excessive demands on SMEs.

While big businesses have the resources to fulfil all regulatory demands, owners of SMEs find themselves overstretched by the twin commitments of filing paperwork and keeping the business afloat.

Taxation will play a strong role in levelling the playing field for SMEs. With member states’ budgets finally under control, tax rates for SMEs should be lowered. Any tax reductions would be paid back with subsequent economic growth.

The tax system in Europe is based on minimum standards. It is not forbidden for member states to set higher rates. The situation in Austria, Luxembourg and Germany is ludicrous. Special taxes on SMEs calculated on capital, credit volume and credit interest are weighing businesses down. On average, taxes levied on SMEs should be reduced by 3-5% across the EU.

On an international level, the EU will have to fight SMEs’ corner, protecting business from the unfair practices prevalent on global markets. China and India should be pressurised to accept the rules of a civilised world in the areas of intellectual property, environmental protection and wage levels. A globalised business world can only function if there are rules accepted by all players.

We have a lot of extremely cheap imports especially from China. The reason why China is so cheap lies in the low wages, the dearth of environmental protection measures and poor intellectual property enforcement. The EU should use its clout to influence China.

China is so big now that it must become a responsible partner. The Japanese are now normal, civilised, fair global players. In some areas, such as environmental protection and patents, Japan was in the same situation as China twenty years ago.

SMEs feel misunderstood. To be fair, they are often unaware of the initiatives being introduced to assist them at EU level. Communication is part of the problem. But, seeing issues such as the minimum wage being given so much attention is discouraging to an entrepreneur earning what amounts to a paltry sum for his hourly efforts.

European citizens will look more kindly on EU integration if the Union offers the right solutions to global challenges. Freed from their bureaucratic shackles, small businesses will be able to work in the interests of citizens.

• German centre-right (EPP-ED) MEP Ingo Friedrich is a member of Parliament’s committee on constitutional affairs. He is honorary president of the SME Union, a network of pro-business Christian-Democrat, Conservative and Liberal politicians devoted to defending the interests of SMEs.

Godfrey Bloom

Back in 1992, after a lifetime with major City institutions as a financial economist, I ventured out alone to start a consultancy practice. Second-hand office furniture, no clients, a tiny office in York. A very nerve-racking experience for the erstwhile corporate man. Today the company has offices in London, York, the Channel Islands and Hong Kong. It is now ably run by younger people as I take a five-year political sabbatical, although I still remain very active as a research economist for the company. That was 15 years ago. I honestly do not think I could or would have done it now.

The burden of employment legislation and other regulations simply make it impossible. British employment lawyers make big money running seminars for ‘human resource’ directors, leading them through the labyrinth of legislation. That is all right if you are a full time pro with Tesco or HSBC but if you run a small hotel in York you have neither the time nor money to attend.

It is my contention that the whole European project, however well-meaning it may be, is designed as a partnership between politicians and big business. Up to a few years ago I was still running my company, very hands-on, very time-consuming. Long hours, few holidays, certainly to start with. I do not need politicians to tell me how much to pay my staff, what hours they should work, what pensions they should enjoy, how old they should be, how young, old, male, female, black, white, green or yellow. I do not need to be told how much leave they should be entitled to or what they may or may not wear to work or what to say to them at the Christmas party. If they are lazy, stupid, dishonest or slovenly I expect to be able to sack them and hire someone else.

I notice that the UK prime minister is free to sack people whenever he wants. I want the same privilege. Paradoxically my staff (who incidentally are all excellent) do not want this raft of legislative nonsense. There are some bad employees and bad employers. Well, that is life. But to free an economy to go forward requires entrepreneurial flair and flexibility. More than 52% of the UK’s gross domestic product (GDP) comes from small businesses. More than half the new businesses launched last year were launched by women. The life-blood of the country is the small business. I have one of the biggest post-bags in the country from small business men and women, they all send the same message. We do not grow quite deliberately, we stay small, employing people is not worth the hassle. What to do? Let us take small business out of the legislative procedure. What kind of nonsense is it where we have the same rules for Barclays Bank and the corner shop? More pragmatism and reality in the treatment and taxation of small companies. Encourage self employment rather than the employee dependency culture with all that it implies. Keep civil servants and politicians without serious business experience away from the legislative process. You expect your doctor, dentist or accountant to be qualified: politicians with no commercial experience on hobbyhorses cost jobs. Youth unemployment in the EUis a global disgrace. Free the people who pay the politicians’ bloated salaries now.

Without all the jobsworth busy-bodies who enforce all the regulations we could raise the tax threshold for those brave people who have a go at making a business. Look at the parts of the world which make life easy for the small business. Their national GDPs outperform the EU two and threefold. If we do not grip these problems soon it will not just be the manufacturing jobs we banish to the far east and to north America but our young people. If the seed-corn of future generations leave us, to develop unfettered elsewhere, then where will our lovely index-linked pensions come from?

• UK Independence/Democracy MEP Godfrey Bloom is a member of the Parliament’s committee on internal market and consumer protection.

Two MEPs look at the environment for small businesses in Europe.