Opinion: Don’t tax aspiration, let’s recruit entrepreneurs to our cause

If you asked a Lib Dem about why they joined our party, I think many of the following reasons for joining, would be on their list:

  1. I deliberately choose a smaller organisation
  2. I choose to engage in an environment where I could be heard, not drowned out
  3. I am able to make do with a few resources against competitors with plenty
  4. I want to work with the best and most committed, not the richest or loudest
  5. I work to change things, to remake better services for everyone
  6. I work harder, faster and more effectively than my opponents because I want to win
  7. I believe in a joined up global world without borders

Do you recognise these qualities in your Lib Dem colleagues, friends and activists? In our party, politicians and conferences?

I firmly do, but they were professional qualities before I even thought about joining the party.

I don’t remember exactly the moment I decided to work for myself, but from University onwards, I never really got used to the idea of having a boss. One day I struck out, left my job and did something different for a few months. Consultancy turned into an idea that turned into a business. That failed so I tried again. For the past eight years, I’ve worked for startups in California and London and I now run my own financial technology startup in Bristol. I am fine with risk, if I don’t work, I don’t earn and for me that focuses the mind on those gloomy Mondays.

I believe that the natural home of the technology entrepreneur is with the Lib Dems and yet so many of my professional peers are reluctant Conservatives or Republicans. They don’t feel at home in parties that hold social conservative views but they hold their nose, knowing that their businesses, livelihoods and dreams rely partly on a political party that can be trusted with the economy.

Our party’s values of tolerance, opportunity and doing things differently are the values of so many tech entrepreneurs in the UK and yet I can name only a handful that are Lib Dems.

I was horrified to read commentary in the run up to Nick Clegg’s conference speech that said he was planning to reduce entrepreneur’s relief. The payout, the sale, the exit at the end of the rainbow is what drives me and the majority of my peers.

It doesn’t matter that most of us won’t ever make that seven figure exit in the end, the belief that we might, makes the 18 hour days, the risk and the sacrifices, worthwhile. And when/if we get there, our reward for creating jobs and growth in the economy will be a one off tax reward that allows us to keep more of the money we’ve earned.

If there are tax loopholes, close them, don’t tax aspiration.

At our recent conference there wasn’t a single conference fringe event about UK start-ups. Jeremy Browne did his best to mention entrepreneurship in every speech he made, but he was a lone voice.

We need to start shouting about how much we have in common with tech entrepreneurs everywhere and I plan to. It’s laughable that with their regressive economic policies, Labour claim to be the party of small business, while most entrepreneurs I know don’t associate with any core grassroots Conservative values.

Now is our chance, lets start(up).

* Alain Desmier is Chairman of the Islington Lib Dems. You can contact him at [email protected]

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38 Comments

  • Adam Corlett 10th Oct '14 - 10:43am

    Good piece, but I disagree. If someone makes £10m (or anywhere close) in their lifetime by this route – on top of any other earnings – they really are amongst the richest in society. Lower tax rates (in this case 10%) to incentivise the 1% (if not simply provide tax avoidance opportunities) should not be our priority. If it’s meant as a “reward for creating jobs”, a more direct and progressive route is just to have lower taxes on jobs.

    The party should try as hard as possible to support innovation, and CGT needs serious reform – which I don’t think the party has quite got right yet – but really regressive tax breaks should not be our answer.

  • Simon McGrath 10th Oct '14 - 10:47am

    @Adam – but its not a zero sum game. By encouraging entrepeneurs and risk takers we will increase the size of the pot for everyone.

  • Lib Dems often campaign against digital businesses by virtue of wanting everything online to be free, so I don’t know how much they can genuinely appeal to tech entrepreneurs. I’ve always found the party particularly at odds with my work, there’s usually someone (often Julian Huppert), trying to create legislation that will stick you on the dole or make it so that Google/Apple, etc, own your future!

  • Whilst I think there is/ should be a natural appeal to fellow entrepreneurs to the Lib Dems, we also have a cultural conflict in the party. There is somehow an implicit tension between aspiration/ details, innovation/ maintaining the status quo and success/ responsibility.

    The mainstream UK parties have a shortage of people who have run companies in general, and as a fellow entrepreneur I think that’s taken to the extreme when it comes to those behind fast growth companies in what might be called the job creation business. We’re probably no better or worse than others, but we certainly won’t make any friends by calling for punitive taxes on exit – especially when anyone sensible would simply move to a less avaricious society for a year and declare gains there.

  • Eddie Sammon 10th Oct '14 - 11:42am

    Alain, thanks for this article. You won’t get many people as passionately pro business as I am, but Jeremy Browne’s politics are not the answer. We need to produce sustainable liberal governments and that means meeting the concerns of all sections of society, not just pleasing entrepreneurs all the time. Economic liberalism also has deep divides when it comes to foreign policy and other issues too.

    That said, the Lib Dems do have a problem with still being a bit anti-business. Too many seem to think businesses are of the past and the future is mutuals, but mutuals are not as quick at making decisions and contracting and self-employment gets rid of the employer-worker divide too, which is what I prefer.

    I think we should abolish entrepreneur’s relief and replace it with just lower capital gains tax, but unfortunately the party looks like it is going the opposite way. This is OK as long as they remember to add corporation tax to the capital gains tax liability. It really won’t be fair if they try to tax enterprise more than salaries.

    I think one member one vote will help the party become more pro business, but the membership base seems to still be a bit out of touch (favourite leader Natalie Bennett?). That said, I have a lot of confidence in Clegg and those around him.

  • Eddie Sammon 10th Oct '14 - 11:49am

    By the way, mutuals have their place in the economy, I’m just saying some people want to get private sector businesses to fund mutual competitors and this is anathema and deeply unfair to entrepreneurs.

  • What are tuition fees of 9k a year if not a tax on aspiration?

  • Alain Desmier 10th Oct '14 - 12:14pm

    @AdamCorlett – What do you mean by ‘lower tax on jobs’ – lowering of income tax? My overall point would be, ignore the individual entrepreneur for a second. If a £10 million company popped up out of nowhere, think of the jobs, corporation tax, income tax, regional benefit that would be created. I put it in the piece, but my business is in Bristol. Think what fast growing tech companies could do for all regions of the UK, not just Shoreditch

    @Caracatus – I think the main point here is risk, opportunity and who drives our economy. Most businesses and startups fail, but it’s the ones that succeed that create jobs and creates “entrepreneurship for the many”. Startup founders don’t exist in silos, they hire staff who themselves think in a few years, you know what I could do this for myself. And so the cycle goes.

    Thanks everyone for the comments.

  • The problem is not everyone agrees with you. A lot of Lib Dems believe in social justice, a strong welfare state and are socially liberal. Many of these social democrats first and foremost want to provide for the less well off in society and are unashamed of arguing that taxes on those who have done well should be increased to pay for this. I am one of those people albeit no longer a Liberal Democrat voter.

    The one thing that is consistent amongst Lib Dems seems to be their belief in what I’d call social liberalism. Almost no Lib Dems have a problem with a person’s race, religion, sexuality or whatever, or whats to hang and flog criminals or close the borders, they are consistent there. But their views on the best way to run the economy seem to vary greatly. That’s changing though, the social democrats are leaving due to the coalition with the Tories. Looks like you’ve finally chosen a side in the economic argument as well. The party will be much smaller in future as a result of this though.

  • Adam Corlett 10th Oct '14 - 1:51pm

    @Alain, on “job taxes” I’d go with reducing employer NI on low incomes to start with, but also income tax and any other tax that falls on regular workers. But in a few years we’ll probably be in a state where employment can’t go much higher – where new jobs can’t be created in aggregate – which undermines that line of argument a bit.

    Of course, there’s far more to growth than just the number of jobs, and in theory it could indeed make sense to have certain regressive tax breaks (paid for by people on regular incomes) if it meant higher growth (@Simon). But given that tax breaks are paid for by the many; that they add much complexity to the tax system; and that inequality has costs, we need to make sure they’re worth it.

    Entrepreneur’s relief cost £3.2 billion last year. That may well have boosted innovation in some way but where is the scrutiny of whether that was well spent? A £3.2 billion / year pro-growth initiative from a government department (also requiring higher taxes from low and middle incomes) would have far more scrutiny. The question is not whether it boosts growth but whether it’s the best, most cost-effective way of boosting long-term growth. To give one comparison, the science budget next year is only £4.7bn: is it really plausible that entrepreneur’s relief – a somewhat higher incentive to make £10m – does more for future living standards in the UK and around the world than would a 70% increase in all the publicly funded medical, physical and other science done in this country?

  • Alain Desmier 10th Oct '14 - 2:39pm

    @Adam, using a scheme designed to promote growth, for tax avoidance is clearly abhorrent and your scrutiny point is a very good one. Entrepreneur’s relief should be subject to the same levels of transparency of actually spending that money, as you suggest.

    I started the blog post with values shared by Lib Dems and start up founders, and that’s really my point. In my view the Lib Dems needs to become the party of entrepreneurs so that we can formulate policy that is both fair to the taxpayer and entrepreneur, and pays for itself in the level of job creation and overall tax received by the state. Everyone wins then.

    If you accept that we are in a ‘global race’, British entrepreneurs will find ways of growing their businesses here or abroad, whichever party influences tax policy. Your figure only takes into account what it cost rather than what it could have cost has individuals taken their businesses or in fact income, abroad.

    Let’s be the party that has a progressive approach to creating new businesses, with entrepreneurs who want to create a fairer society for all. The scheme was initially forecast to cost £200 million. Let’s reform it, not scrap it.

  • So it seems that the solution suggested to the problems arising from the Lib Dems trying to be like the German FDP is — to become more like the FDP? In that case we can expect the Party to end up like the FDP, too, excluded and irrelevant.
    If the Lib Dems want to get back into politics, they will have to stop trying to be a laissez-faire party of ultra-rich libertarians, and instead at least make an effort to be a party of the people. At any rate it is clear that there are completely exclusive notions about where the Party should go. I do not see how they can coexist in the same party for very long.

  • @ Andrew R

    “What are tuition fees of 9k a year if not a tax on aspiration?”

    An alternative to having higher taxes all round to pay for tuition fees through general taxation. So that too would be a “tax on aspiration”. You’re not really thinking the thing through, are you?

    As for “not taxing aspiration”, what the heck are we supposed to tax instead to pay for public services then?

    “The payout, the sale, the exit at the end of the rainbow is what drives me and the majority of my peers”

    Maybe that’s a good reason for us to raise this tax. Then you could aspire to run, build and grow your business rather than selling out at the first possible opportunity. It would encourage, long term planning and entrepreneurship, which as everyone knows is the big problem in the UK, in that our business culture is geared around short horizons.

    If we don’t tax capital gains, where do we find the extra revenue for the things government needs to do?

  • Alex Macfie 10th Oct '14 - 4:31pm

    @ChrisB: In what way do Lib Dems want “everything online to be free”? This sounds to me like a strawman, or a wilful misinterpretation of Lib Dem support for laws governing the Internet that benefit ordinary people rather than giant corporations. In general tech entrepreneurs (as opposed to the Microsofts etc of this world) would benefit from Lib Dem digital policies.

  • “The payout, the sale, the exit at the end of the rainbow is what drives me and the majority of my peers.”
    Sorry but if this is the case, you and your peers are investors and not entrepreneurs.

    Otherwise I do agree that the LibDems probably should be a natural choice of party for those who are setting up businesses and all they have are aspirations, rather large out goings and an uncertain future.

    Yes in all my various start-ups over decades we dreamed of ‘success’, which primarily was about doing well in terms of product, business and personally. Yes the ‘exit’ crystallised much of the personal financial gain and confirmed the ‘success’, leaving one free to pursue other interests, but the ‘exit’ wasn’t a driver to pursuing an idea in the first place.

  • Alain Desmier 10th Oct '14 - 4:59pm

    @William – That’s spot on. That’s exactly what I was trying to convey

  • Geoffrey, I can’t describe the gulf between your last post and reality – Why would anyone focused primarily on contributions to society, the environment and creating worker cooperatives sacrifice their entire personal life, their income and often their relationships to create a business? The aims you highlight are very laudable, and one can pursue them very easily on someone else’s dime for just 30-35 hours a week working for the govt or the third sector.

    I hate to break it to you, but those who seek to create profit making companies primarily do it because they want to create profit making companies (albeit often with high levels of society responsibility).

    Roland – I also think that you’re being a bit harsh and I wonder if it’s (again) a generational thing. The economics of new business creation have changed dramatically over the last 10 years because of both new models and technologies as well as a much more liquid equity market. I do some a handful of entrepreneurs who have created highly cash generative businesses who haven’t been focused on what comes next (indeed, one of my businesses fits this model), but in most cases cash is hard to come by and so planning for an exit up front is the most responsible way of getting a decent return on your investment of your time.

  • geoffrey payne 11th Oct '14 - 6:53am

    Peter I think you are jumping to conclusions and maybe that is my fault for not being clear. Often an entrepreneur has to make big sacrifices to get a start up off the ground and certainly they deserve to be rewarded with a higher income. My objection is to those who dream of success only for themselves and have little consideration for how they make their profits. For example someone like Alan Sugar who treats his employees with contempt and only cares about the bottom line.

  • geoffrey payne 11th Oct '14 - 6:56am

    This is in contrast to the founder of Greg’s bakery who has a much more positive attitude to his staff.

  • Peter 11th Oct ’14 – 1:42am
    “…….I hate to break it to you, but those who seek to create profit making companies primarily do it because they want to create profit making companies………”

    Peter, I am interested in your comment to geoffrey payne. You probably know a great deal about who all these people are that create profit making companies and what their personal motivation is in so doing. I could not make any such claim. I do know that my son set up in business a few years ago and he told me that his primary motivation was that he liked the idea of working for himself rather than someone else. Does this fit with your understanding of what motivates people?

    During my working life as well as during my time as a local councillor and for some time as a member of the board of the local Training and Enterprise Company I came across a few people who had created profit making companies. Some of them seemed to fit the description that geoffrey payne included in his earlier comment. You seem a bit dismissive of such people. Why?

    I hope you will not be too dismissive of my remarks because for forty years I was working for the government. By the way during all those years I seldom came across a single person who got away with working for the government for as little as just 30-35 hours per week. Where have you seen these jobs? If I had known they existed I would have grabbed one for myself.
    Or were you exaggerating to embroider our point?

  • Eddie Sammon 11th Oct '14 - 10:24am

    Something that Roland said resonated with me a bit. I wouldn’t have a goal to definitely sell the business – this talks down your price. The second option if you get tired is always to hire a manager. Bill Gates hasn’t even sold all of Microsoft yet.

    My start up was doing well two and a half years ago, I had a desk in Liverpool city centre and was paying the bills, but then I got bored of it and started to read about politics. I still feel that my duty is to prioritise business, but I’ve learnt that you need other interests in order to make the whole thing sustainable.

    Regards

  • >In what way do Lib Dems want “everything online to be free”?

    Read the DEA threads now, there are plenty of members on there discussing their individual rights to do what they like with the works of others, if you struggle let me know and I’ll pull out a page of choice quotes! It’s now apparent how delusional some members were – the threats, lies and none of it became a reality! Blocking torrent sites wasn’t the end of freedom as we know it, it was a sound business move and the voluntary code got agreed without the results predicted by the doomsayers. A number of Lib Dems active online joined a lobbying group called the Open Rights Group years ago, so that small group has a disproportionate influence on our tech policy, ensuring we look like bumbling idiots that don’t care about business. Lib Dems are terrible on rights for digital entrepreneurs and always have been, but we’re also so deeply lobbied that we can’t tell ourselves from the lobbyists.

    Another broken Clegg promise to the membership – to repeal much of the DEA, what happened to EDM 17? Reality dawned and it turns out the whole things weren’t as bad as everyone was making out, so no more was said about it! To me it worked out great, but I think the folks that were shouting about how “draconian” the DEA would be got stitched up.

    >In general tech entrepreneurs (as opposed to the Microsofts
    >etc of this world) would benefit from Lib Dem digital policies.

    OK, so you can explain this Alex? : http://www.parliament.uk/edm/2013-14/869 How did Julian and Tim put Apple & Micosofts words directly into an EDM? Be under no illusions who is benefitting here (and it’s certainly not small startups or the public). I don’t see any Lib Dem EDM’s submitted for tech policies for anyone but tech behemoths, but I’m ready to change my mind based on evidence – show me what the party has done in the last 5 years, what Lib Dem digital policies are we all benefitting from today? As far as I know, we have done absolutely nothing in this field since joining the government, so my point stands – can you reciprocate?

    Feel free to educate me on how tech entrepreneurs would benefit from Lib Dem policy, because all I’ve seen is a load of ranting over nothing and no legal protections offered; but an explanation as to why Lib Dem MPs are putting Apple, Microsoft and Google’s words verbatim into EDMs would be much appreciated. Maybe you spotted some parliamentary action I missed!

  • There is a (perfectly valid) model for new businesses that just provide an income for the person concerned, perhaps with a bit of support as it grows. Sometimes these even cross the boundary and scale from being in the right place at the right time. There’s a book I’d recommend called “The $100 startup” for how you can create a new company with the aim of giving you a decent income and a decent quality of life.

    When we talk about “entrepreneurs” there’s perhaps a bias to talk about people aiming to create something a bit larger, something worth a major 3+ year sacrifice of one’s life in order to create wealth which can be used for future years. Talk to the person who designs their first restaurant with the aim of building 200, who develops an online clothing store with the aim of selling £100M a year or the person who creates a professional services firm with the intention of going global, and these are never people who primarily just don’t like working for other people (although that may well be a factor). In all of these cases, operating and funding models are built from the ground up to grow.

    In those cases, the form of exit (if one is planned at all) has to be a key consideration. In a fast growth firm, your exit could conceivably net you 10x your current profits, which in a company with linear growth could be 4 times as much as the total amount of profit in a company 5 years old. This is an arbitrary (but not altogether unrealistic) scenario, but when 80% of your payback comes from the exit, you do really have to keep it in mind from the beginning.

    Ultimately, I’d like to point out that there’s nothing wrong or illiberal with creating a company with the aim of becoming personally successful. New companies create massively positive benefits on broader society in terms of employment, investment, jobs, training and taxes. A party of aspiration would celebrate and encourage those successes and contributions instead of attacking businessmen, focusing on how to squeeze more tax out of the entrepreneur and complaining that they’re being avaricious in daring to do more than work for a modest salary. We live in a society with relatively pro-entrepreneurial legislation but which still retains a smidgen of the traditional British disdain for those seeking to change their place in society. Dare I say it, I think we can see some of it on this thread.

    Of course, you will have some companies polluting, employing illegal immigrants and breaking all types of laws, but let’s be fair to our political opponents – these are not Conservative companies any more than they are liberal ones. They’re just bad ones, and tend not to stay around all that long.

  • Eddie Sammon 11th Oct '14 - 5:36pm

    Peter, but I love rationality and entrepreneurs relief gives an artificial advantage to business owners. Entrepreneurs should pay the same capital gains tax as all share-holders. I am not saying we should increase capital gains tax across the board, perhaps we could increase it for entrepreneurs and lower it for shareholders. Entrepreneurs relief also encourages holding weaker investments simply for tax purposes.

    Regards

  • Jonathan Pile 11th Oct '14 - 6:21pm

    Alain
    I agree with the spirit of your piece. As a fellow recent business startup I think we need to ensure that LD policy is pro startup and pro SME. If we allow ourselves to be painted as Anti business, then we can add that to anti student, anti teacher etc. Is there a LD SME business lobby group to rival other powerful voices in the party?

  • Alain Desmier 12th Oct '14 - 9:59am

    @Jonathan – glad you agree. This is exactly what I’m trying to get together, please do drop me a note [email protected] and i’ll loop you into discussions.

  • Peter
    Thank you for the well argued response. Nice to have something from someone who thinks in paragraphs!

  • Mark Valladares Mark Valladares 12th Oct '14 - 10:59am

    @ Peter,

    You make a series of very good points, which reflect human nature as I see it from the perspective of a (sort of) regulator.

    I suppose, however, offering up a sacrifice to the Gods, that to some extent, most entrepreneurs reach a point where they have enough money and start to think about what else they can do with it – social philanthropy, if you like, or creating a legacy. It’s why the successful endow educational facilities, or museums, or charitable foundations. We could, as a society, cherish such donations rather more than we do, creating a culture whereby the wealthy are encouraged to do more of that sort of thing.

  • Eddie, remember that shareholders benefit from £15K a year investment of tax free ISA allowance. If you really want equality between business owning and shareholders, then ALL capital gains on the first £75K investment (assuming a 5 year period) would have to be completely tax free.

    I think there’s a very strong argument that shareholders currently have it much easier. I’d certainly be paying less tax if I could invest in my businesses in the form of an ISA.

  • Eddie Sammon 12th Oct '14 - 3:02pm

    Hi Peter, I am in favour of scrapping ISAs. The right wouldn’t kick up a big fuss because I’d introduce more sensible policies instead. If they keep kicking up a fuss then just brand it a selfish paper that wants hand-outs for the rich.

  • Eddie Sammon 12th Oct '14 - 3:03pm

    The Telegraph and the right wing media I mean. If they kick up a fuss over sensible policies then just brand them selfish, that’s what I would do. No one is entitled to artificial tax breaks.

  • Mark Valladares Mark Valladares 12th Oct '14 - 3:08pm

    @Eddie,

    I find myself wondering about ISAs too. The logic is that our saving ratio is worryingly low – and there are many and various reasons for this, I accept, so effectively incentivising people to save has potential benefits later on. On the other hand, regardless of the incentives on offer, those who struggle from pay cheque to pay cheque see little or no benefit.

    Are there better ways of using resources? Possibly, but I can’t see any political party being brave enough to do anything or, if they were, surviving the fallout…

  • Eddie Sammon 12th Oct '14 - 5:01pm

    Hi Mark, I am glad we agree on something publicly! I would probably just put the money towards getting rid of the deficit and I would increase interest rates slightly to help savers. Home owners wouldn’t be happy at first, but they can be placated with stamp duty cuts or just by emphasising the importance of the deficit. We can’t have government by the middle class, all in it together means everyone has contribute towards the deficit. I like stability so I’d recommend phasing in any radical policies.

    Regards

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