|SMALL BUSINESSES RESPOND TO BUDGET
June 26 2010.
Almost half the small businesses surveyed by the Forum of Private Business are pleasantly surprised by the budget but some fear tax rises and other concerns could lead to a double dip recession.
In all, 47% of respondents believe that policies announced by the Chancellor George Osborne are better than expected but 11% feel they are worse and could plunge the economy back into recession.
"Many entrepreneurs feel this budget has given their businesses a timely boost - particularly in reducing red tape and tax cuts and the proposals for an overhaul of business taxation," said the Forum's Research Manager, Tom Parry. "But concerns remain over bank lending, the impact on job creation of the National Insurance rise, public-sector cuts and areas of government support. The result of the coalition government's first test appears to be that it has passed but is not yet achieving top marks."
The decision to partially reverse the planned increase in Employers' National Insurance contributions (NICs) in 2011 is one of the most popular measures. However, some business owners are concerned that, together with the impact of the 2.5% VAT increase and reductions in capital allowances, it could still prove to be a barrier to taking on staff.
Small businesses have welcomed the reduction of the lower rate of corporation tax from 21% to 20% in April 2011 and the chancellor's pledge to carry out a root-and-branch departmental review of red tape affecting smaller businesses.
Further, they applaud the government's decision not to increase fuel duty at the present time, restrictions in government spending, the promise of a new capital growth fund, the introduction of a bank levy based on lenders' balance sheets and the extension of the Enterprise Finance Guarantee scheme, which has been increased by £200 million and the application process reduced to 20 days.
Following the rise in the entrepreneurs' relief threshold to £5 million, more businesses feel that increasing high earners' Capital Gains Tax to 28% is beneficial than believe it is damaging.
In addition to the VAT increase, the least popular measure identified by small businesses is the decision to reduce allowances, including the main and special rate of capital allowances to 18% and 8% respectively and in the Annual Investment Allowance from £100,000 to £25,000. Both are scheduled to take place in April 2012.
Entrepreneurs who took part in the survey scored the success of the chancellor's own stated objectives, based on the criteria 'successful', 'unsuccessful' and 'neutral':
- Reducing the deficit (84%)
- Supporting enterprise (39%)
- Fairness (37%)
- Creating a stable and certain business climate (29%)
Some business owners are urging the government to prioritise other areas of concern, including continued restrictions in affordable bank finance - the most frequently mentioned single issue.
They have also called for an even greater focus on cutting and simplifying red tape aligned to the Forum's suggestion of a Comprehensive Regulatory Review, greater penalties for late payers, rogue traders and 'phoenix' administrations, specific schemes to tackle unemployment - particularly those helping jobless people to learn trades and crafts and allowing public sector workers to start businesses - and exploring alternatives to business rates in order to minimise the impact of VAT on high street businesses.
Further, small businesses want industry-specific measures to improve the car industry, housing market, retail and construction sectors.
According to the survey, retailers and hairdressers are least satisfied with the VAT increase and professional and business service providers with the National Insuraaance rise.
Manufacturers are concerned at the reduction in capital allowances and annual allowances and some construction firms about the impact of public sector cuts on schemes such as Building Schools for the Future (BSF).
Small businesses speak out:
"No help to me whatsoever even though I am a small business. In fact the rise in VAT is going to make things harder. I have not increased my prices for two years and this will prevent me being able to raise them yet again. All my suppliers however have increased theirs."
Hairdresser, South East
"Good balanced Budget, now waiting to see what happens to the public sector"
Manufacturer and distributor, South East
"Worried that the increase in VAT and cut in public services will halt the recovery in the economy. Pleased that the initial world market reaction has been positive."
Manufacturer, East of England
"Better than expected - VAT was always going to have to rise and although will have an impact on fuel costs (a large part of our business) I still feel this is preferable to another hike in National Insurance. The reverse of the increase in National Insurance and taking low earners out of tax may make it easier to employ another two part-time people later in the year."
Transport firm, East of England
"Relief that in the short term public sector capital expenditure has not been cut further. However, we still have great concerns about the impact of the review of the BSF (Building Schools for the Future) programme which is due to be completed later in the year."
Manufacture of construction products, North West
"Overall as good as can be expected under the circumstances. Obviously disappointed that the 'jobs tax' increase in Employers NIC hasn't gone completely, as that will have an effect on my business. We are in the high tech sector located in the South East so the majority of the staff earn above the break-even point. This increase will cost us money."
ICT business, South East
"It appears as though the new government is determined to take action instead of letting things get worse and I welcome their commitment to tackling the 'won't work' mentality. The budget was not as severe as I thought it would be and I hope it will not affect the recovery. The rise in VAT is fair as it will affect the rich, who spend more on VAT inclusive goods, much more than the less well off whose income is spent largely on food, which is not affected."
Automotive business, South East
"Overall it was not as bad as expected but our customers will all be worse off and maintaining sales will be difficult. If unemployment rises as seems likely the problem will be compounded. It will largely be down to confidence and if this evaporates a further setback seems likely"
High tech design and manufacture, South East
"The budget was OK for small business. We shall have to overcome the VAT problem - it was a necessary evil, and had to happen anyway. Maybe if employment costs are going to fall, then some traders can absorb some of the VAT increase. But I was really disappointed at the lack of any help in terms of bank lending to small businesses. This is a real concern of mine. As I have said many times before, (and assuming they will lend at all) the increase in bank charges and interest rates is only making it more difficult for firms to recover."
Accountant, South West
"I thiinnk that we are heading for a double dip recession and a long age of austerity. I don't believe that this budget is making enough cuts quickly enough".
Estate agent, South East