25 July 2018

What can the government do to help female entrepreneurs?

By Annabel Denham

When there is an obvious problem that needs fixing – and even when there isn’t – politicians relish rolling up their sleeves and getting involved. Sometimes it works: gold-plating EU requirements for maternity and parental leave, for instance. Other times, such as the new pay gap reporting measures, it doesn’t.

Rather than discussing the gender pay gap – which is based more on political agenda than truth – politicians should instead turn their attention to the gender scale-up gap. The UK is home to some of the most exciting small, fast-growing companies in the world. Yet just a fraction – one tenth – of these businesses with revenues between £1m and £250m were started by women. Part of the discrepancy can be accounted for by lifestyle choices: not all entrepreneurs aspire to create the next Facebook or Google. Further, women tend to create businesses in those sectors – such as retail or services – where it is more difficult to build revenue, profits or start hiring employees.

Yet for those female-founded businesses with ambitions to scale, barriers to success may be higher than for their male counterparts. According to a survey conducted by the All-Party Parliamentary Group for Entrepreneurship and investment firm Octopus, a third of female entrepreneurs think their gender has been a hindrance to scaling up, compared with less than 1 per cent of men. Entrepreneurs of both genders think “conformity to social expectations, gender stereotypes or gender roles” and “family responsibilities” are the primary culprits holding women back from greater entrepreneurial activity.

Beauhurst data show that, in 2017, women received just 9 per cent of the funding pie. On the surface, this may not seem like a problem government can solve. Politicians cannot — and should not — interfere with the investment decisions made by business angels or venture capitalists.

If we want more women at the helm of fast-growth tech companies we need more girls entering STEM, but the reasons behind the drop-off rates are extremely complex and government intervention could come with unforeseen costs. In both cases, government’s power lies not in regulation or new requirements, but in its ability to collect gender-disaggregated data, convene entrepreneurs in the halls of Parliament, or work closely with schools and universities to improve careers guidance.

But as the APPG’s latest report has found, a little tinkering could go a long way. We cannot separate female entrepreneurship rates from a country’s treatment of women when they choose to start a family, and tweaking the system could lead to better female entrepreneurship participation rates.

Statutory Maternity Pay is a generous benefit for new mothers, which also allows female employees to carry out work in a self-employed capacity during her Maternity Pay Period. This is good policy: it enables potential female entrepreneurs to use time away from the traditional workplace to set up a business, with the SMP safety net still in place.

However, those receiving Maternity Allowance are entitled to only 10 “Keeping in Touch” days, after which the benefit is withdrawn. This makes little sense: we don’t want female entrepreneurs putting their businesses on hold, nor should policy pressure them into timing motherhood with when it best suits their careers.

That is why the APPG is calling on government to remove the Keeping in Touch restriction. Further, introducing Paternity Allowance, to match Statutory Paternity Pay, and Shared Parental Pay for the self-employed would help challenge wider societal perceptions that childcare responsibilities lie with the mother.

State intervention in childcare, while motivated by the best intentions, has led to rising costs for both government and parents. A recent IEA study found that the UK government spends around £7bn annually on the childcare sector; yet costs for parents are now three times that of France and Germany. Childcare subsidies have had a significant displacement effect on private sector activity, and there is only limited evidence that it increases female labour force participation.

Regulation of childcare and pre-schools through the Early Years Foundation Stage (EYFS) may have squeezed out lower cost alternatives like childminders, while placing excessive bureaucratic burden on nursery and pre-school staff. Parents want childcare professionals interacting with their children, not filling out paperwork. A fundamental review, and scaling back, of the EYFS framework is needed. Our teacher-child ratios, which are the highest in Western Europe, have further pushed up costs for parents with no tangible improvement in childcare outcomes or safety. These, too, must be reassessed.

Attempting to level the playing field is a risky endeavour, and politicians must tread carefully. But it’s clear that with better policies we could capitalise on the untapped ambitions and potential of female entrepreneurs – all the more important in the current, uneasy political and economic climate.

Annabel Denham is Editor at The Entrepreneurs Network.