A Budget for a “brighter future”?

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The Chancellor Philip Hammond promised a budget for “the strivers, the grafters and the carers”. Recognising these people as the “backbone of our community and economy”, he said his proposals would pave the way for a “brighter future”. While the budget came with some good news, Mr Hammond should have used yesterday’s speech to hit the growth button for Britain’s small businesses.

First, the good news

Mr Hammond announced measures that will help small businesses:

the VAT threshold will remain unchanged for a further two years
Entrepreneurs Tax Relief will be retained
he will increase UK Export Finance’s direct lending for exporters by up to £2bn and will extend the British Business Bank’s start-up loans funding by £200m
business rates for all retailers in England with rateable value of £51,000 or less will be cut by one third, providing a £900m boost
for smaller firms taking on apprentices, the Apprenticeship Levy will be cut in half
a freeze on taxes rises on beer, cider and spirits, helping pubs across the country

The chancellor also earmarked £1.6bn for new technologies to help tackle the UK’s productivity puzzle and create the high-wage, high-skilled economy of the future.

An opportunity to go further?

However, while the Chancellor demonstrated that Britain is open for business, he could have done more to fire up small businesses. For instance, while Hammond’s continued freeze of the VAT threshold is good news, it doesn’t go far enough. He should simplify VAT, or raise the “speed limit”, to stop the threshold from being the barriers to growth that it is. What’s more, his consultation on a new sliding scale system of VAT only adds confusion. The system is elaborate enough already without adding greater complexity that small businesses can ill-afford.

Going further, the small business economy is the foundation that the UK builds on. And while the UK is a great place to start a business, there is still a real challenge for it to become a place where those businesses can grow. These barriers break down into three broad areas: a lack of capital, minimal take up of business technology, and an absence of key business skills.

1. Access to capital

Quite often the working capital that small businesses need is tied up beyond their reach, with late paying customers. In addition to the immediate cash flow issue, late payments affect small firms’ financial profiles, harming their credit score and making it harder to raise funds. Small businesses are obligated to meet all sorts of official requirements. We believe the time has now come for large firms to be obligated to pay on time.

2. Better use of technology

We need to make better use of technology to help reduce the administrative burden on small businesses. For instance, modern technologies help small businesses to understand their cash flow, making it easier for business owners to know where they are with their finances. Mr Hammond should have introduced a tax relief for small businesses that invest in new tools.

3. Business skills

Third, we need to help small businesses get the skills they need. Accountancy and bookkeeping are prime examples. To help instil these skills, we would like to see a public information campaign aimed at small businesses to encourage take up of business technology that can simplify business management. Providing a boost to Britain’s small businesses would give the whole economy a lift and the opportunity Mr Hammond should have taken.

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