The pernicious impact of Help to Buy on the "march of the makers"

21 Jun 2013 wrench rust

Early in this UK Government's period of office, they appeared to want to encourage "maker" business startups. But since then there has been precious little impact and new policies, such as Help to Buy, appear to show a lack of understanding of the personal realities of entrepreneurship.

A switch in emphasis

Back in 2011, still in the early, optimistic, naive days of this coalition Governments' period in office, George Osbourne outlined how he intended to oversee a rebalancing of the economy.

We want the words: ‘Made in Britain, ‘Created in Britain’, ‘Designed in Britain’, ‘Invented in Britain’, to drive our nation forward. A Britain carried aloft by the march of the makers.

The intention was sound. The UK economy appeared to be over-reliant on Government spending and consumer spending, presenting high risk factors from poor diversification. Furthermore, in an economic environment characterised by high amounts of public and private debt, relying on two drivers of economic growth which had potential to run out of momentum in the following years was foolhardy.

Much of the "march of the makers" speech, and the debate afterwards, concentrates on manufacturing, but that reflects the romantification of manufacturing practiced by the UK press. The important thing is not how dirty your hands get making the product; it's the fact that it's a product you're creating. In reality any product based business, hardware or software (and not just computer software), was covered.

Osbourne appeared to be suggesting greater onus on product-oriented businesses. Why? Osbourne was seeing how (1) it is easier to export products than services, generally and (2) how important it is to promote product based businesses which drive overall productivity. This shifts the drivers for economic growth from government and consumer spending to business investment, both onshore and in the form of exports.

Since the speech, the makers haven't been doing a lot of marching. In fact, the progress shown by various product-producing sectors has been poor. But there has been one growth area.

Software continues to be a growth area. Government attempt to trumpet this, sometimes in cringeworthy soundbites but they have done precious little to encourage this. Indeed, the overall emphasis on Government policy has swung from an attempt to laud the "makers" and instead fall back to good-old consumer spending.

A switch in emphasis II

Two years later, in the 2013 budget, Osbourne announced the Help to Buy scheme. This policy aimed to guarantee the mortgages of first time house purchasers, in effect cutting the size of the deposit they must save to apply for a mortgage. A fairly noble intention, on the face of it.

Unfortunately the longer term effects are unlikely to be promising. In an already unaffordable housing market, raising demand is only likely to push house prices to even less affordable levels. At the same time it saddles the young with more debt.

Now, it's a cliché that only young people start vibrant computer software startups. But, nevertheless, said individuals do make up a good proportion of all business starters. It is a really bad idea to saddle entrepreneurs with high levels of personal debt. It will make them more conservative, overall dissuading the formation of startups.

(As an aside, even if you do have a mortgage already, trying to re-apply for your mortgage is difficult to do as an entrepreneur. Whether you are self employed as a sole trader or a director of a limited company, banks will demand to see proof, in the form of accounts, of your income. And woe betide you if you decide to make do with a lower income to finance the expansion of the business... whether or not the capital is available to you via dividends, personal budgeting or a generous partner, trying to prove your income becomes very difficult.)

The great deception

Originally Government appeared to be seeking to reduce Government spending and rely less on consumer spending and wanted to use business investment in products to drive this. But now, consumer spending appears to be back in fashion, and it seems to be fine to encourage people to take on more and more debt again.

Seen in the backdrop of general cutting of the state it's hard to ignore the implication that the "march of the makers" was always a cheap publicity stunt, one that makes good headlines. With little policy change to actually encourage "makers" and with new measures such as Help to Buy which perniciously discourage startups it all suggests that Osbourne is taking steps to harm entrepreneurship.

March of the makers? I'll be more likely to be marching in the streets.

Thanks to Hernan Vargas for the image above.
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