Starting up a business: The view from mainland Europe

How the process compares between Britain and the continent

With all the furore about red tape and stingy banks, the confusion of public grants and the gaping holes in government support, it’s easy to think of Britain as a tough place for small business.

Certainly, one would be forgiven for assuming that our continental cousins have it far easier than us. After all, everyone knows Germany’s economy is built on the Mittelstand, the thriving, countrywide network of small and medium-sized firms, while France is all about its boucheries and boulangeries, and Belgium’s administrative and financial excellence can only help a young company secure the advice and funding it needs.

Given these attributes, the driving forces of mainland Europe surely offer more fertile ground for small business than muddled, cash-strapped Britain, don’t they?

Well, actually, no. According to the Doing Business report, endorsed by the International Finance Corporation and the World Bank, it’s easier to start a business in Britain than in any major state in mainland Europe.

The study rates each of the world’s countries on their ease of doing business, from 1 to, erm, 183 (we’re not sure why either). When it comes to starting a business, Britain’s ranking is 17; France gets a ranking of 21, Belgium 31, Holland 71 and Germany, surprisingly, 88. Britain scores similarly high on everything from cross-border trade to protecting investors, and enforcing contracts.

But why is this the case? What is Britain doing better than its continental cousins? To find out, we asked Patrick Gibbels and Stuart Rodriguez, of the European Small Business Alliance(ESBA), to give us their view.

Both moved quickly to the subject of bank lending; this is particularly interesting, given that Britain received a ranking of two from the Doing Business survey for getting credit. According to the study, only Malaysia makes it easier for a small firm to secure funds.

Gibbels says: “The EU offers grants aimed at micro businesses, but they have to be channelled through the banks – which can mean that, in certain cases that the banks play politics.”

“Some banks are becoming like loan sharks,” Rodriguez said, echoing Gibbels’ sentiments.

Furthermore, interest rates are markedly higher in mainland Europe than the UK. While the Bank of England maintains the all-time low rate of 0.5%, the European Central Bank has recently increased its own rate to 1.25%, and the financial markets expect the figure to rise across Europe to 2% by the end of the year.

Although Britain’s banks have been criticised over lending,  in reality the banks of mainland Europe are just as cautious, if not more so. Across the continent, the new Basel-III regulations, designed to prevent a future financial crash, are having a knock-on effect across the region.

 

Furthermore, it seems that British entrepreneurs face a smaller tax burden than their counterparts across the Channel. Taxes are lower in Britain than in many other European states – in France, for example, taxes on pay have reached 45%, and the figure is even higher in Belgium.

Taxes are just part of a mountain of a regulations which bedevil entrepreneurs in mainland Europe. It’s easy to forget that much of the red tape we lament in the UK originates in Brussels; one recent survey said that 72% of the total cost of UK regulation now comes from the European parliament.

The Brussels bureaucrats have enacted more than 100,000 pages of regulations since 1997. Together, these regulations cost European businesses around £109bn each year.

According to Gibbels: “More and more legislation is coming from Europe to the member states. There is a lot of legislation which is for small business, and much of it is based on a ‘one-size-fits-all approach,’ which does not work.”

Belatedly, It seems that the European parliament, and many of its member states, have now woken up to the challenges facing small firms, and have launched initiatives to help them. For example, in Belgium, a ‘credit mediator’ sits on meetings between banks and small businesses, and attempt to find a compromise which will secure a loan for the applicant. Meanwhile, in France, the new auto-entrepreneur scheme is specifically designed to help start-up entrepreneurs cut through the red tape, and launch their business within days.

However, these new initiatives are not without their problems. For example, Gibbels says the auto-entrepreneur scheme “has a downside, because established entrepreneurs feel the newly set-up businesses have it easy under the new rules, and it’s creating friction.”

Similarly, Rodriguez mentions the draft directive to exempt micro-busiensses from EU accounting burdens. ESB Ahad to lobby intensively to get this measure through parliament, in the face of staunch opposition from large businesses and accounting firms.

In time, once the new regulations have bedded down, the environment for start-ups may become as fertile in mainland Europe as it is in Britain. For now, however, Britain is proudly leading the way. So next time you get wound up about an unnecessary piece of legislation, or an over-complicated tax system, remember – it could be a lot worse!

 

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