The Spring Budget is a resounding disappointment for SMEs across the East Midlands and the UK.
SMEs make up 99.9% of the UK economy, according to the government’s own figures. So where is the support for them as the cost of living crisis closes doors across the nation?
Despite rolling reforms across sectors, the announced support to incentivise investment and boost the economy simply isn’t enough. Chancellor Jeremy Hunt seems focused exclusively on easing cash flow concerns for larger businesses - but it leaves SMEs to fend for themselves at a point when consumer confidence and spending is plummeting and prices continue to climb.
The ‘budget for growth’ as it has been dubbed promises to re-energise Britain’s workforce by focusing on Chancellor Jeremy Hunt’s 4 ‘E’s: enterprise, education, everywhere and employment. But what measurable benefits will it yield to SMEs?
“An enterprise economy needs low taxes - and cheap and reliable energy” - Chancellor Jeremy Hunt
Despite Hunt’s pledge to “turn Britain into a science superpower” with investment in enterprise, the announced measures to support research and development are extremely limited. Essentially, the ‘enhanced’ R&D credits equate to 27p out of every pound - which business can only claim back if R&D accounts for at least 40% of a business’s overall expenditure.
Realistically, this places most companies out of the running, leaving only knowledge-intensive enterprises in specialist fields to benefit. It will mean very little to the man on the street trying to keep the lights on.
I was expecting more from the Chancellor in this regard. While the overall sentiment is quite positive, it would have been nice to see a roadmap that explains in understandable terms quite how this will play out for businesses.
However, his exploration of the AI sandbox does sound interesting! As well as £900m of funding to support the growth of artificial intelligence, there will also be a prize of £1m every year for the next 10 years to whoever creates world-leading AI. The aptly-named Manchester Prize is certainly quite the incentive!
What’s more, the intensive investments in energy are promising for Britain. The news that nuclear energy will be welcomed into the same tax incentives as renewable energy under the regulation of new governing body Great British Nuclear is good for kick-starting our own domestic energy effort - but only time will tell if the 25% target of it supplying all energy in Britain by 2050 is achievable.
This investment in domestic energy also pledges £20bn in support of carbon capture usage and storage (CCUS), which could make Hunt’s promises of cheap and reliable energy a possibility by 2050… but is this achievable?
With no support at all for businesses struggling with rising energy costs mentioned through the lengthy announcement, all this is promising for Britain’s future economy - but our current small business owners are unlikely to benefit in any way, shape, or form.
Support for education in this sense is limited to reforming the childcare system and giving incentives to bring more childminders into the sector. This comprises of a £600 payment for those who join the profession independently and £1,200 if through an agency.
The funding paid to nurseries will also increase by approximately 30% this September which, coupled with wraparound care from 08:00 to 18:00 in schools nationwide, could enable more working parents to get to work, stay in work, and up their hours.
What’s more, the government will introduce 30 hours of free childcare from the moment maternity leave ends, which is expected to reduce childcare costs by nearly 60% for parents. However, this is to be a staggered rollout, meaning that parents will need to wait years to qualify for the full offering.
Simply put, those with little ones currently under two are unlikely to benefit fully, if at all, from this initiative.
The Chancellor confirmed that a total of 12 investment zones will be established to focus on levelling up the UK economy, spurring national growth by focusing on leading with local improvements - with the East Midlands being one of them.
While this consists of £80m for each individual zone over 5 years, further details on this will be critical in outlining how this can benefit local businesses. In this sense, support for SMEs is implied but not certainly not clear.
What is promising, however, is the investment zones being classified as Digital and Tech; Green Industries; Life Sciences; Advanced Manufacturing; and Creative Industries. With the East Midland’s rich manufacturing heritage as home to major international brands including Rolls Royce, Boots, JCB, Triumph Motorcycles, and Siemens Industrial Turbomachinery, this could be quite the boost to the local economy.
However, a sector that is set to benefit immediately from national investment is the leisure and tourism sector, which will be able to access a fund of £63m via Sport England. The funds have been announced to ensure that community facilities that have faced a growing risk of closure amid rising energy prices can keep their doors open - which is promising news for swimming pools and leisure centres across the East Midlands, as well as the rest of the country.
A further boost to this is supporting pubs by ensuring that duty is lowered by 11p less per pint when compared to supermarkets - which could act to have the punters pouring in.
There are currently 9 million people in the UK who are ‘economically inactive’, which means they are not working, either as a result of early retirement, illness, or are seeking employment.
Hunt plans to radically reduce this figure by incentivising early retirees to flood back into the national pool of labour, as well as announcing support for people with disabilities, those seeking work, and those receiving income support.
To encourage people to remain in work, he has announced a complete abolishment of the lifetime pension allowance. This is expected to incentivise more experienced workers to stay in work longer and ease short-term employment issues - but it would mainly benefit those with the biggest retirement savings.
Meanwhile, the yearly pensions contribution allowance has also been increased by a full 50% - rising from £40k to £60k.
This, coupled with Mid-life MOTs and returnerships (apprenticeships for over 50s to get them back into work), could help to energise the national workforce, drive up employment and benefit the economy.
However, in terms of support for SMEs, businesses have been let down when it comes to taxation as many companies will fall victim to an increased rate of corporation tax.
As previously announced, the 19% tax rate for corporations remains for those with taxable profits of £50,000 or less, which is only true for stand-alone companies. Where companies are part of a group or under common ownership, they will have to share this ‘small company’ tax rate.
This re-introduces the complexities of associated companies' rules, at a time when the UK business community could really do with more simplicity - not yet more red tape to wade through.
In addition, the 25% tax rate applies in full for taxable profits of £250,000 and above. This means that for companies with profits between £50,000 and £250,000, there is an effective marginal rate of 26.5%. This does seem punitive, and again adds complexity when it should be adding confidence.
Replacing the super-deduction with full capital expensing for the next three years will really only benefit larger businesses and not SMEs.
For SMEs, the short answer is no. While the news that we won’t ‘technically’ enter a recession is welcome, the offered support is vague and unclear - despite sweeping claims designed to kick-start the economy. Yes, it’s expected to fall by just 0.2% in 2023 before rising by 1.8% in 2024, 2.5% in 2025, 2.1% in 2026 and 1.7% in 2027 - but it isn’t clear on how.
The government claims to have the lowest headline tax rate in the G7, even after the impending rise in April, but small and medium-sized businesses don’t seem to be presented with any measurable way to reduce their expenses. Yes, growing the workforce is a positive - but where are all these people going to work if much of the population can’t afford to keep the lights on, let alone the heating?