This Wednesday, as the UK teeters on the precipice of a recession, the new chancellor Jeremy Hunt will offer up his first Spring Statement. Depending on the contents, it will be ‘make or break’ for many SMEs.
Likely, the budget will focus on flattening the inflation rate, which is currently hovering around a record 9% mark. But Hunt is only expected to offer minimal support for smaller organisations due to the poor state of the public purse.
Help is urgently needed. Recent Companies House analysis from NerdWallet has shown that 534,777 closed in 2022, the second highest number of business closures in a decade.
We asked five small business owners and experts to tell us what’s at the top of their budget wishlist. Below, we’ll explore what policies they’d like to see and how likely they are to be introduced.
The top five items on the small business budget agenda are:
1. Reverse the corporation tax increase
Last September, the UK government announced that corporation tax will increase from 19% to 25% on April 1. This is expected to net £18bn a year for the Treasury.
The legislation will affect any business with annual profits of £250,000 or more. Small companies with profits up to £50,000 will still pay corporation tax of 19% (profits between these two figures will be subject to a tapered rate).
At the same time, the Super Deduction Tax, which allows businesses to cut their tax bill by 25p for every £1 that they spend on plant and machinery assets, is scheduled to end on March 31.
Mike Randall is CEO of Simply Asset Finance, a small business lender. In light of these two planned policies, Randall argues any budget changes should give SMEs more confidence to make strategic growth investments.
“The introduction of the Super Deduction Tax in 2021 demonstrated an intent from the government to incentivise UK business investment. Its limited impact so far demonstrates that there’s still much more to be done to support UK business productivity,” adds Randall.
How likely is it to happen?
Many small business experts have called for the corporation tax rise to be scrapped. Telecoms giant BT has said it will take the UK in a “drastically anti-investment direction”.
However, both the prime minister and chancellor have publicly ruled out cancelling the increase. One U-turn on the issue has already occurred under Liz Truss’ tenure. Two would be pushing it.
Instead, analysts are predicting that the Super Deduction Tax will be extended or revamped in some form to mitigate against the negative impact of the corporation tax rise.
2. Raise the threshold on business rates to counteract rising energy bills
Small business rates, a charge by local authorities to finance public services, are set to increase on 1 April 2023. Any climbs will be capped at 5% for small companies, but the change will still be an unwelcome tariff for small business bookkeeping.
Currently, English firms can get the Small Business Rate Relief (SBRR), a national discount scheme administered by local councils, if their property’s rateable value is lower than £15,000.
The Federation of Small Businesses (FSB) is calling for this to be raised to £25,000 to ensure more organisations can qualify for financial assistance.
Elizabeth Jones is the owner of Natural for Baby, a Balham-based children’s clothing and gift shop. Jones says companies like hers need more help with business rates to combat the financial difficulties being caused by hiked energy bills.
“The business rates are discounted a bit at present,” she accepts, “but when so few people have money to spend, reducing the rates more will mean that the savings can balance out the bigger electric bills.”
How likely is it to happen?
Hunt will almost certainly press ahead with the rise in small business valuation rates. He has already extended and increased business rates relief, from 50% to 75% up to £110,000 per business.
However, we may yet see some further support measures introduced to help with energy bills.
Revisions to the new Energy Bill Discount Scheme, set to begin on April 1, could see more generous discounts allocated to firms. Funding to improve energy efficiency for businesses is another option being suggested by industry experts.
3. Lower the age limit for workplace pensions
As employees across the country have been hit by shrunken real wages, there have been calls for the Spring Statement to provide more support for savings and retirement by addressing pension tax reform.
Chieu Cao is founder of Mintago, a financial wellbeing and pension management app. Cao says he wants the March budget to focus on two aspects.
Firstly, for the qualifying age for auto-enrolment pension obligation to be lowered from 22 to 18. Secondly, for Hunt to remove the qualified earnings limit, which currently only permits earnings over £10,000 to be eligible for auto-enrolment.
“By at least increasing the amount that is being contributed through auto enrolment, we would be one step closer to helping people have enough at retirement”, insists Cao.
How likely is it to happen?
Almost certain. The government has already backed legislation to give ministers the powers to lower the pension obligation age. As for removing the qualified earnings limit, Cao is hopeful.
“We do think this will be introduced,” he affirms. “Especially given what we have seen in terms of inflation. Without any action taken, millions of individuals will end up in retirement poverty.”
4. Broaden employment support
UK labour market participation fell dramatically in the pandemic, with lots of people choosing to give up work or move industries as a result of the ‘Great Resignation’. Resultantly, staff vacancies have soared upwards, leaving SMEs with hiring gaps and skills shortages.
Ahead of the Spring Statement, two small business owners told Startups that the lack of available skilled labour is the biggest issue they’d like to see addressed by Hunt.
The childcare crisis is one culprit. Last week, a report by the charity, Coram, found that the average annual cost of a full-time nursery place for a child under two is now £14,836. Such figures effectively lock out low-income parents from the workforce.
Brett Wigdortz is founder of childminder agency Tiney.co. One of his ‘perfect world’ suggestions is the government to offer subsidised early years care from birth to school.
“Parents could go back to work, and their children would have better education for their future careers,” he argues.
Another contributor to low workforce participation is poor health. Government data shows that half a million people are currently out of work due to long-term illness.
Molly Johnson-Jones is the cofounder of Flexa, an accreditation service for flexible working. She says she wants to see Hunt commit to improving support for workers with additional health needs. “As someone who has lived with a chronic health condition since the age of 18, I know how difficult it can be to find employers who accommodate health needs.”
Johnson-Jones suggests business grants could be given to help make workplaces more accessible. Training courses could also help managers to support workers with health conditions or help with inclusion policies like neuroinclusion.
“Given the government’s current focus on fixing labour shortages, I don’t see why the chancellor wouldn’t consider measures such as these,” she states.
How likely is it to happen?
Hard to say. Childcare support for benefit claimants is expected to be introduced in the budget, but the government has so far kept mum on the idea of broader support to help businesses attract and retain talent.
Still, it is likely that some training and employment policies will be introduced to reckon with the labour shortages. In his Autumn Statement in November 2022, Hunt announced that the Work and Pensions Secretary would review workforce participation in time for the March budget.
5. Work directly with more small businesses
Reactionary financial aid packages have been a safety device for many SMEs through the turmoil of the previous three years. But a long-term support solution could be more government contracts for small businesses
Recently, Enterprise Nation’s Access All Areas report found that, despite Whitehall’s ambition to spend 25% of its procurement budget directly with small firms, it has so far only managed 10%.
Emma Jones, founder and CEO of Enterprise Nation, says, “Entrepreneurs want to see the government championing their work [and] recognising the great value they add to the economy, making sure they have access to the support and funding they need to grow.”
Jones suggests leveraging technology. Connecting government’s tier one suppliers to suitable digital sub-contractors would help. Taking steps to ensure SME invoices are settled on time would be similarly valuable.
So, a win-win situation for everyone. The government would get access to better-value contracts, while supporting an essential part of the economy. Smaller businesses, meanwhile, would be awarded a bankable avenue for ongoing work.
How likely is it to happen?
The government’s overreliance on expensive, third-party consultancies is already much discussed. Consultants have successfully tendered for more than £700m of work from the UK government since 2020.
Reform has so far been slow. Back in 2010, David Cameron promised to “drive down the use of contract staff”. Come this January, the in-house consultancy arm that his government pedalled as a solution was scrapped.
Movement towards prioritising small business tenders for public-sector contracts is likely to be introduced as a series of long-term objectives, rather than a quick-fix bill introduced in the upcoming budget.
We’ll be publishing a reaction piece on the day of the Spring Statement to see how well the government’s actions measure up against small business owner expectations. Email us at hello@startups.co.uk on the day or visit our social media pages to add your voice to the conversation.
via https://www.AiUpNow.com
March 12, 2023 at 04:28AM by Helena Young, Khareem Sudlow
