The Autumn Statement and the Spending Review have finally been announced by chancellor George Osborne, but how will the Conservative’s fiscal announcements shape the economic landscape for small businesses over the next year? SME Insider investigates.
The Autumn Statement and Spending Review are two of the biggest events in the fiscal calendar, and this year they have been merged together. On the 25th November, the chancellor gave a speech to MPs in the House of Commons explaining how his party is spending the public’s money and what they plan to do to reduce the deficit over the next 12 months.
SME Insider was analysing every second of Osborne’s speech, teaming up with sister publications Accountancy Age and Financial Director to find out how SMEs will be affected by the changes.
— SMEInsider (@SMEInsider) November 25, 2015
Improving UK infrastructure
Osborne started by highlighting that the Conservative Party has improved Britain’s economy, as it was in ‘turmoil’ when they came into power with the coalition over five years ago.
The chancellor pledged to provide £7bn towards the construction industry – great news for small building firms. In April, SME Insider reported that a lack of builders and equipment will put housing plans into meltdown, so this latest investment from the Tories comes at a critical time.
Another issue within the UK is its growing skills gap, so Osborne promised to create more than a million extra jobs in the next 5 years. With 99.5 per cent of the public sector controlled by SMEs, will the responsibility fall upon small business owners to do this? Only time will tell.
Osborne then threw a number of statistics towards his fellow MPs, revealing that the national debt as share of GDP will be 82.5 per cent this year, then 81.7 in 2016, 77, ultimately falling to 71.3 per cent by 2020/21. The chancellor also promised an economic surplus of £10.1bn by 2019/20.
— BBC Breaking News (@BBCBreaking) November 25, 2015
There are some figures in the SME community who felt that the chancellor didn’t go far enough in explaining how he is going to reduce the debt.
‘‘Osborne has singled out businesses as the greatest contributor to GDP growth. Yet there are no measures in the Autumn Statement that improve the financing options for SMEs,’’ said James Sherwin-Smith, CEO of SME lending firm Growth Street.
‘‘If the government believes ‘businesses are the lifeblood of the UK economy’ and want to achieve its goal of ‘backing small business’ more needs to be done. George Osborne has a responsibility to address this and has not gone nearly far enough with measures announced in today’s Autumn Statement,’’ continued Sherwin-Smith.
Osborne confirmed plans for every small business to have an individual digital tax account by end of decade, with the chancellor promising a ‘‘digital revolution we’re bringing to Whitehall.’’
Osborne then pledged to invest an extra £450m into Digital Government Services (GDS), which could have positive long-term implications for how small businesses use government services.
The funds allocated to GDS are to continue creating common platforms such as GOV.UK Pay, which will simplify hundreds of different payment systems.
The chancellor set 2020 as a target by which citizens will have the option to pay online for every central government service, including passports, driving licences and motoring fees. No longer will be the days of small business owners travelling to their local HMRC office to pay your tax, but instead there will be a completely paperless system that will be used by all, not just SMEs.
In addition, The Common Technology Services programme will deliver flexible technology for the entire Civil Service, opening up more government contracts to smaller suppliers.
Devolution and Enterprise Zones
Around 30 minutes into his speech, Osborne tackled the subject of devolution, promising to give more powers to local councils, including the creation of 26 new and extended Enterprise Zones and setting aside £12bn for local growth funds.
Established in 2012, Enterprise Zones have supported over 540 businesses nationwide, with companies gaining a 100 per cent business rate discount worth up to £275,000 per business over five years.
There are currently 24 Enterprise Zones throughout the UK, but during the Autumn Statement, plans have been laid out to create 18 new sites across the country and the extension of 8 sites on the current programme.
‘‘We are today setting aside the £12 billion we promised for our Local Growth Fund and I am announcing the creation of 26 new or extended enterprise zones, including 15 zones in towns and rural areas from Carlisle to Dorset to Ipswich,’’ said Osborne to the House of Commons.
The enterprise zone initiative coincides with the Tories plans to devolve centralised powers to local authorities, with the chancellor claiming that his agenda is ‘‘the most determined effort to change the geographical imbalance that has bedevilled the British economy for half a century.’’
- A ‘‘revolution in the way we govern this country’’, giving local councils more powers than ever before
- An improvement on business rates – Local governments will be able to keep 100 per cent of the revenue it generates
- The chance for cities to elect a Major – he or she will have power to improve local infrastructure in partnership with the local council
- Devolve responsibilities more to councils – for example local authorities will receive an extra £10m in order to help homelessness people in the area.
Osborne then focused his attention on small businesses, announcing a one year extension for the small business rate relief scheme.
Using this scheme, SMEs will receive 100 per cent relief for properties with a rateable value of £6,000 or less, which means that small business owners won’t pay business rates on properties with a rateable value of £6,000 or less.
Confirming what we already knew, the chancellor will reduce corporation tax to 18 per cent. One department which is being cut is the one for business, innovation and skills (BIS), with day-to-day spending being cut by 17 per cent.
Transport was also a major theme within Osborne’s speech, pledging to invest £11 billion into London’s travel infrastructure, which could positively impact the way the capital’s SMEs transport goods and services to the rest of the UK. Public spending will also rise to £821 billion by 2019-2020.
For those who drive a diesel car, good news; the chancellor has promised for a Diesel supplement on all company cars, which could affect thousands of SMEs that supply cars to their staff.
There is a major concern among business groups that SMEs will be caught out by the apprenticeship levy.
The tax, which is being run at 0.5% on paid bills and affects payrolls of £3m and over, has made key business representatives fear that this will trap many smaller businesses, which would go against the government’s promise to only include larger businesses.
Stewart Segal, chief executive of the Association of Employment and Learning Providers (AELP), raised fears that small and medium-sized firms will be caught out by the requirements of the tax.
‘‘(The levy)will also apply to more businesses than we expected because the £3m benchmark means that employers with less than 150 employees could be included in the Levy,” said Segal, who added that there needs to be more clarity given towards the rules around the levy if we are to see an effective implementation by 2017.
Carolyn Fairbairn, director-general of the Confederation of British Industry (CBI), also believes that small businesses could be severely affected by the levy.
‘‘The apprenticeship levy, set at 0.5%, is a significant extra payroll tax on business and by widening the net it will now catch more smaller firms,” explained Fairbairn, who ‘‘welcomes the creation of a levy board to give business a voice on how the money is spent and will work with the Government to ensure a focus on quality.”
Another director-general, Simon Walker of the IoD, has reservations as to how the apprenticeship levy will be implemented.
‘‘We are very concerned by the government’s assumption that a quarter of the money collected will be spent on just administering the levy. Firms have been promised they will get back more than they put in, but it’s not clear how this will happen if so much is being lost in bureaucracy,” said Walker.
What was missing from the statement?
Late payments. The UK’s army of small businesses have been plagued by payment issues over the past 12 months, forcing SMEs to fork out over £26 billion in order to retrieve their hard-earned cash. The Tories are yet to announce a small business commissioner, someone who could put an end to late payments.
Rumours were flying before the statement was that Osborne would announce a one year extension to the Bank of England’s controversial Funding for Lending initiative, but nothing was said on the matter.
What did you think of the Autumn Statement – were you impressed by what Osborne said, or do you think he could have done a better job? Let us know in the comments below.