Rishi Sunak’s second Budget is due tomorrow at 12:30pm and we’ll be sharing the most important takeaways for the UK’s SMEs. With the difficulty of the past 12 months, it’s one of the most hotly anticipated Budgets in recent history and a number of points have already leaked. So what can we expect from tomorrow’s announcement, and what is the small business community hoping for?
Supporting the road out of lockdown
The UK’s economy shrank by nearly 10% last year and unemployment reached 5% by the end of 2020. Businesses across the country are continuing to battle the pandemic while as a country we’re also looking towards creating a more competitive and dynamic business environment.
With the roadmap to begin easing our way back to normal already set out, businesses in some sectors are having to wait longer than they’d like to get back to trading properly. For example, aviation, hospitality and events. These sectors need to be protected if we’re going to come out of the crisis. But with over £5 billion of funding expected to be announced, there’s plenty to look forward to in tomorrow’s Budget.
What do we know already?
There’s been a lot of talk online and in the Press about a few measures the Chancellor will be announcing. First of all, while the lockdown and restrictions continue, so will economic support. The key packages we’re familiar with to support businesses through the pandemic will continue. Specifically, the Furlough scheme and targeted VAT cuts. There will also be increased financial support for the hardest hit sectors in the form of grants.
Rishi Sunak is expected to confirm an extension to most of the economic measures introduced to help businesses during the pandemic. So, the Coronavirus Job Retention Scheme (Furlough) will continue into June, when the last corners of the economy can hopefully start to reopen.
More incentives to bring workers back from furlough before the scheme winds down would help a lot of employers as the economy starts to recover. Targeted support will be vital to the survival of many businesses, particularly in the hardest hit industries, while they remain closed or start to rebuild.
We’re expecting businesses in the hospitality and leisure industries to be eligible for up to £18,000 in grants. This is designed to help them foot overheads and other fixed costs that aren’t going away while they’re forced to stay shut. Shops in the UK will also be able to apply for up to £6,000 to help them with reopening after lockdown is eased on 12 April.
The Government has indicated that around 700,000 firms will be able to apply for the grants, including 450,000 non-essential retailers. They will be replacing the Local Restrictions Support Grants. As with those, it’ll be down to local councils to approve businesses for these grants.
The Federation of Small Businesses (FSB), the UK’s largest business group has previously criticised the Local Restrictions Support Grants for being too low at up to £3,000. The increased amount is clearly the right direction for affected businesses. They’ll also work towards reassuring businesses of their viability while we hope for the best with the vaccination programme. However, the FSB has found that a tiny proportion (just 5%) of small businesses have actually been able to benefit from the current discretionary grants from their local authorities.
In fact, just 13% of the total funds made available in mid-November had been given out by local authorities by mid-January. This is for a number of reasons, partly because the paperwork is a lot for them to process, and also because the criteria is long. We hope that the next round of grants can be rolled out more effectively so that they get into the hands of those who need them most.
Business tax changes
This is a big question for tomorrow. Currently business rates are at 19%, but to ease pressure on the country’s finances, it’s possible that these will go up to 25%. HMRC has also hinted at introducing a new tax on digital goods.
With so many businesses pivoting to online sales as their only source of revenue, hitting them with a new tax here would be a huge blow for many. If the Government is introducing this to recover taxes from huge tech companies, it’s vital that it’s done in a way that doesn’t affect small businesses.
The pandemic has not been equal across all sectors. While some businesses are on their knees, others are enjoying rich returns. Big tech companies or financial services companies that have profited off of stock market volatility are enjoying huge payouts. Targeting the companies and individuals who have profited from the crisis can help those who suffered disproportionately. This could be through one-off wealth taxes, cracking down further on tax avoidance loopholes or even a ‘ Covid tax’ on the big pharma companies selling huge amounts of their vaccines.
Payment holidays and deferrals
Current VAT deferrals have been a huge helping hand for many small businesses. We’re hoping that these are extended until at least the end of June, with VAT incurred so far this year included. Further, the June 2020 VAT cut for tourism and hospitality should be extended beyond 31 March 2021. With so many affected businesses remaining closed beyond this date, removing this support would do a lot of harm.
CBI has also called for Bounce Back Loans to be interest-free for a further six months, with the payback window extended too. Additionally, allowing the Bank of England to provide liquidity directly to fintech lenders like ourselves would enable a lower cost of funding for small businesses. And we can get it to them faster.
In 2019 we saw business rates reduced to 50% to help the high street, and then increased to 100%. The review hasn’t yet been completed and with so many businesses closed, Confederation of British Industry (CBI) has suggested freezing the Universal Business Rate (UBR) until it is. Then, they’d like to see it lowered at future revaluations.
The FSB wrote to the Government in January asking them to extend the current business rates holiday and cash grants. A significant issue they’re noticing amongst small businesses losing out in the current support packages are suppliers to affected businesses. While there’s support available for hospitality, retail and leisure, their suppliers are not necessarily entitled to it.
The Budget can’t just be about driving consumer and Government spending. We also need the Treasury to tackle investment in business so that we have a thriving business environment to go into after the pandemic.
Help to Grow scheme
The Government has created a £520 million scheme to help 130,000 SMEs access to discounted software and digital as well as management training. The idea is to improve productivity across the business landscape, and will be welcome by smaller businesses that can’t afford to offer or pay for this themselves.
Business schools will offer 50 hours of training with one-to-one support for free. Small businesses will have a mentor to help them level up, giving them the skills and network they need to thrive. Access to fast broadband is key to this scheme having maximum impact. The FSB has called for the Government to make sure infrastructure can support it.
Boosting the workforce and improving skills can be done through other ways. Introducing new Research and Development (R&D) credits to small businesses will help them fund their improvements. Evolving the Apprenticeship Levy will also help both young people and the businesses they learn in.
Supporting businesses through Growth Hubs can help address the issues smaller firms run into, as well as directing them to other support available. FSB has also looked at creating a UK Shared Prosperity Fund to help the Government distribute business support funds across the country. Their hope is that small businesses will be at the core of the new fund, especially those in more deprived areas of the country.
Creating a UK that’s genuinely ‘open for business’
As we’re no longer part of the EU, we have an opportunity to reposition ourselves favourably in the global business community. The Treasury could move to lower corporation taxes and capital gains to encourage entrepreneurs to come or stay in the UK, increasing talent visas to further support this.
Businesses have been pushed over the limit
The business community has shown a huge deal of resilience this year. The double blow of COVID and Brexit has meant spiky demand and uncertain supply chains straining cash flow. Morale has been impacted across the board this year due to staff absences, furlough and redundancies, along with disrupted working environments.
Small businesses tend to offer fewer products or services so by nature are more exposed. This Budget must take into account the difficulties that many are facing this year and offer not just help in overcoming them, but also commit to building a productive and thriving UK business environment to be part of in the future.