This document was created in March 2000

A Foreword by the Right Honourable Stephen Byers MP, Secretary of State for Trade and Industry

Building wealth and prosperity for all citizens in the UK is a key Government objective. Entrepreneurial activity is a major determinant of growth and is in turn affected by four principal drivers: the perception of opportunities, the capacity of the population, the entrepreneurial infrastructure of the country and attitudes towards the creators of businesses. UK cultural attitudes are among the least supportive of entrepreneurs and respect for them is lower here than in any other comparable economy, except Japan. This is very serious, since a person is only likely to start a business if success brings social recognition and failure does not mean public humiliation. The Government must take a lead in helping to tackle the low level of motivation to start and grow new businesses because motivation correlates directly with entrepreneurial activity.

One of the reasons why people in the UK tend to be risk averse is because they see the financial and social costs of failure as outweighing the benefits of success. Bankruptcy law currently makes no distinction (and therefore third parties cannot tell the difference) between those who are honest but unlucky or undercapitalised and the reckless or fraudulent. All lose their personal wealth (with some limited exceptions), are automatically disqualified from being a director of a limited company and suffer a number of other restrictions for a period of up to three years. We believe that a distinction can and should be made between the two groups so that the vast majority of honest bankrupts do not continue to be stigmatised through association with the dishonest. This consultation document proposes a much earlier discharge from bankruptcy for the large majority whose failure is honest. For those who have invested capital in their businesses, we propose a relaxation of the rules on exemption of personal property. The small minority of those guilty of misconduct would be subject to the full rigour of a new, tougher and more restrictive regime. We are also consulting on proposals to help those who would benefit from financial counselling. These changes would both alleviate the serious social consequences of failure and allow those who have failed honestly to have a second chance to make an economic contribution.

What we are now proposing represents a radical reappraisal of the impact of financial failure on individuals. I hope that it will stimulate real debate about these issues, which are central to the development of a culture of responsible risk-taking.

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