Lord Young: Investing in a start-up is the most rewarding thing I’ve done

Over the past few years we’ve all been living through a revolution — not one where crowds gather in Trafalgar Square and face water cannon, but a quiet revolution that has changed the way we work and live. When I first came to what was then the Department of Industry as an adviser in 1979, a ‘small firm’ was a company employing fewer than 500 people. Today we consider a small firm to be one that employs fewer than ten. As the size of companies has reduced, so the number has increased. There were just 800,000 in the whole country in 1979, there are about 5 million today; but of the five million, more than 95 per cent are firms employing fewer than ten.

How did this come about? Well, there was no doubt that the confiscatory level of taxation in the post-war era did not encourage new small firms, to put it mildly. All this began to change in 1979 when the new Conservative government began to focus on helping small firms and self-employment, and finally reduced taxation to a more bearable level. The 800,000 firms became 2 million by the end of the 1980s and continued to increase steadily until the mid-1990s, when the internet reached critical mass and created a real explosion of new firms. One of the advantages of the internet is to lower all the barriers to starting a new business: and so today we have 5 million firms, with the number still growing strongly.

Of course as these firms have grown, and some have grown substantially over the past 15 to 20 years, they have begun to look for means of finance other than relying on the banks, which fled the small-business sector with unseemly haste at the start of the financial crisis.