Chancellor Philip Hammond’s first budget may have offered some relief for SMEs that will be hit by upcoming changes to business rates but not everyone was impressed
As he delivered his hotly anticipated budget, with a few jabs at the opposition thrown in for good measure, there was something decidedly calm, cool and confident about the chancellor. However, while many of the goodies in his budget were certainly welcomed by SMEs, some members of the startup community were left feeling slightly underwhelmed.
Despite ongoing concerns about the impact of Brexit, Hammond delivered a rosier snapshot of the British economy than he did in his autumn statement. He noted that the growth forecast had increased from 1.4% to 2% for 2017 and that growth was expected to slow to 1.6% in 2018 before picking up to 1.7% in 2019, 1.9% in 2020 and then 2% in 2021.
Adding to the sunny outlook, Hammond stated that the public sector’s borrowing as a percentage of GDP was predicted to fall from 3.8% last year to 2.6% this year. And while this meant that Britain would meet its 3% EU Stability and Growth Pact target, the chancellor quipped that he wouldn’t hold his breath to receive his “congratulatory letter from Jean-Claude Juncker.”
But as well as addressing the big picture, Hammond didn't duck the issue many businesses have been concerned about: the upcoming changes to business rates. Having seen the government face a massive backlash last week after announcing that business rates would change in April, Hammond today unveiled a £435m relief package. This package includes a £300m hardship fund, which will be distributed to SMEs affected by the recalculation. And anyone worrying about the future of their local pub should welcome the news that the package also includes a £1,000 discount on rates for pubs. In another conciliatory move, Hammond said that the system will be reviewed before the next revaluation in 2022.
There was also good news for business concerned about Britain’s talent pipeline. In a bid to “to enhance the UK’s position as a world leader in science and innovation”, the chancellor unveiled plans to invest £300m in science, technology, engineering and maths-related PhDs. Another £270m will be used to keep the UK at the forefront of disruptive technologies like biotech, robotics and driverless vehicles. And to boost Britain’s digital infrastructure even further, £16m will be invested in 5G mobile technology and £200m in local broadband networks across the country. These investment were all part of the £23bn innovation investment package announced at the autumn statement last year.
Further layering on the good news, Hammond added that the government will allocate £40m in the next two years to test different approaches to help people acquire new skills throughout their working lives. This is part of the government's plan to close the skills gap and make it easier for employers to evaluate the skills of candidates by introducing T-levels, which will replace about 13,000 different technological qualifications that can be achieved through further education with just 15 career-focused routes.
And for startups reliant on the gig economy, Hammond made his stance clearer, announcing that the national insurance rate for people classed as self-employed will rise to 11% by 2019 to bring their contributions more in line with employed workers. Currently, the self-employed have a national insurance rate of 9% while for employees it's 12%. Explaining his position, the chancellor said that such “dramatically different treatment of two people earning essentially the same undermines the fairness of the tax system”.
Investors and entrepreneurs alike should also note that director shareholders are going to face reduced tax breaks on the dividends they receive. It will drop from £5,000 to £2,000 from April 2018.
And it didn’t take long for the startup community to respond to the budget. Mike Cherry, national chairman of the Federation of Small Businesses, the organisation championing British SMEs, welcomed the relief fund for businesses affected by the business rates reviews. However, he was “disappointed that there won’t be more frequent revaluations sooner”. Cherry also expressed concerns about the fact that national insurance contributions for self-employed people were going to increase, saying it should be seen as a “£1bn tax hike on those who set themselves up in business” and that the increase “undermines the government’s own mission for the UK to be the best place to start and grow a business”.
Others like Robert Dagge, managing director at Dynistics, a software consultancy firm, were left underwhelmed by the absence of news about how Brexit will affect the economy. “[We] all waited with bated breath to hear some glimmers of hope from the chancellor,” he said. “Unfortunately it seems that we will have to wait a bit longer to get anything with substance for businesses.”
A more positive reaction came from Daniel Hegarty, CEO and founder of habito, the digital mortgage broker, who welcomed the investment in the country's digital infrastructure and future workforce.“I’m really pleased to see investment in technical and digital skills, STEM subjects and the introduction of T-levels into education, as it’s essential that we equip the next generation with the correct skills to succeed in a digital-first world,” he said.
Clearly, the chancellor's first spring budget has produced a mixed bag of reactions. We can only hope that he upholds his pledge to make the UK the best place in the world to launch and run a business.