Ten years of Labour Government have failed to deliver a better environment for entrepreneurs, an academic study has found.

Business start-up rates have fallen in the UK since 1997, while the proportion of people who are self-employed has remained static, according to a paper by researchers at the University of Sheffield.

Robert Huggins and Nicholas Williams, of the university’s Management School, said that the sharp increase in the level of public sector employment had crowded out the growth of new businesses by offering competing wages for less economically productive jobs.

Their research found that the Government’s dismantling of the Training and Enterprise Councils, which were set up in the early 1990s, significantly set back the progress of enterprise policy.

However, the authors praised the Government’s efforts to encourage entrepreneurship through the school system, which they said could have a positive long-term effect on the economy. They called for support for entrepreneurs to be more focused on highly productive, knowledge-based companies. They also argued that a long-term commitment to lower taxes and a reduction in the size of the Government would boost the creation of start-ups.

Dr Huggins said: “Since Labour came into power in 1997, there has been an increased dependence on public sector employment. This has had a huge impact on promoting entrepreneurship.

“Individuals weigh up the risks and rewards associated with wage employment and business ownership. With increased levels of public sector employment available, individuals may be less inclined to take entrepreneurial risks and choose relatively secure wage employment.”

Philip Hammond, Shadow Chief Secretary to the Treasury, said: “This study shows that despite ten years of Gordon Brown’s rhetoric about supporting enterprise, small businesses in Britain are being slowly strangled by red tape and stealth taxes, including the tax hike on small firms in the last Budget.”

A spokesman for the Department for Business, Enterprise and Regulatory Reform said: “The World Bank ranks the UK first in Europe, and puts the UK in top ten globally [out of 175 countries], in terms of ease of doing business, which suggests the Government is creating the right business environment. The Sheffield report recognises positive measures have been put in place by the Government. There is still more to do and the new Department for Business and Enterprise has been established to foster the best conditions for enterprise in the UK.”

— As the Government prepared to publish a report today on supplementary business rates, which may allow councils the power to charge taxes to local businesses, John Cridland, deputy director-general of the CBI, said: “This would give councils almost unfettered authority to raise vast amounts of money without the need to win support through the ballot box.”

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