The Chancellor vowed to protect jobs but also announced an increase in tax on large company profits from 2023 in his Budget speech
Chancellor Rishi Sunak has announced 2021’s Spring Budget in a wave of new reforms to help businesses and repair the public finances. The Chancellor has vowed to extend the furlough scheme until September and has committed £5 billion to saving Britain’s high streets in a series of changes to help firms get back on their feet. What does this mean for SMEs?
Rishi Sunak has warned the coronavirus pandemic will cost the UK up to £407 billion by next year, as he announced tax hike to pay the country’s soaring debts along with further support to businesses. In his speech today, Mr Sunak announced that both the furlough and self-employment income support schemes will be extended until the end of September. Furloughed employees will receive 80 per cent of their salary but businesses will be asked to contribute their wages from the end of July. The scheme has also widened to include 600,000 people who were previously not entitled under the previous schemes, including the newly self-employed in the 2019-20 financial year. In addition, the Treasury has confirmed extra funding for apprenticeships with a cash incentive boost between £1000 to £3000 per hire.
Mr Sunak warned that repairing Britain’s long-term economic damage will take time, as the economy is predicted to be 3% smaller than it would have been if the pandemic never happened. “Our economy has shrunk by 10% – the largest fall in over 300 years. Our borrowing is the highest it has been outside of wartime, Mr Sunak told MPs. “It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation. But we will recover.” Mr Sunak announced a corporation tax rise from 19 per cent to 25 percent from April 2023, but small firms with profits under £50,000 will still enjoy the lower 19 percent corporation. Only 10 percent of companies will pay the full higher rate, Mr Sunak said. The Chancellor also announced super deduction tax relief to encourage business investment, which will cut taxes by 25 percent for every pound invested ‘ amounting to £25 billion to UK businesses over a two-year period.
In a bid to save businesses that have been hit the most because of the pandemic, the government has announced several initiatives to help struggling firms. The Chancellor announced The Bounce Back and Coronavirus Business Interruption Loan schemes will be replaced by a new Recovery loan scheme. This new scheme will provide businesses loans between £25,000 and £10 million with an 80 percent government guarantee. Paul Christensen, CEO at Previse, commended the government’s new loan scheme, but urged the Treasury to address the ongoing issue of late payments that plague SMEs: Government-led financial aid schemes are a commendable step, but Britain’s businesses need sustainable sources of cash flow that don’t lead to mounting walls of debt. Cracking the slow payment problem that keeps SMEs waiting an average of 72 days for money they are owed, is a good place to start. Technology makes it possible for SMEs to be paid immediately and at no extra cost to corporates. What’s more, it doesn’t cost the Treasury a penny.
The hospitality industry, which has been hit the hardest by the pandemic, will receive a cash injection primarily aimed at retail, accommodation, leisure and personal care firms. Non-essential retailers will be able to access £6000 per business, Mr Sunak announced. Business rates relief for the hardest hit sectors such as retail and hospitality has been extended for three months, and for the remaining nine months of 2020, business rates will be discounted by two-thirds ‘ a £6 billion tax cut for firms. In addition, the government has pledged to extend the 5 percent VAT cut for the hospitality, accommodation and attractions sectors until the end of September. The rate will then be 12.5 percent for a further six months.
Mr Sunak also revealed the new UK Infrastructure Bank which will be based in Leeds, with £12 billion of capital and £10 billion of government guarantees to help drive an investment boom. Almost £400m will be invested alongside the private sector in high-growth start-ups. All alcohol duties will be frozen to help pubs and restaurants recover, and there will be no increase in fuel duty. However, duty on cigarettes will go up by 2%, plus inflation.
Some business leaders believe September may be too soon to end the furlough scheme and may leave small firms scrambling to stay afloat. Oliver Prill, CEO of Tide said: With one in five small businesses expecting to make redundancies once the furlough scheme ends there will be huge pressure for small businesses to return to pre-COVID revenue levels in just a matter of months. Pulling the furlough scheme and all other financial support from under small businesses’ feet so soon may pose a real danger. We would urge the government to put SMEs at the heart of its building back better agenda. Accounting for around half of the economy, SMEs can make a substantial contribution from levelling up to NetZero and job creation.”
Other firms believe the budget is not enough to help support small businesses that form the backbone of Britain’s economy. With more than 600,000 small businesses using our platform to manage their finances, we understand where they need the most help, and it’s clear that Britain’s small business economy remains in a very fragile state, Gary Turner, MD of Xero UK said. The measures announced today relating to the extension of furlough and other support measures, the introduction of digital incentives and ongoing access to capital will support their recovery. Accounting for two thirds of private sector employment, small businesses hold the key to future job creation. So, we would have liked to see more from the Chancellor in support of job growth. When small businesses grow and prosper, our economy will benefit.
However, other firms have urged the government to prioritise digitalisation and help firms meet the demands of consumers. “Brexit is in danger of restricting some of our most promising tech firms from accessing overseas talent, which makes the new fast-track visa a welcome remedy to the growing skills gap, Russ Shaw CBE, Founder of Tech London Advocates & Global Tech Advocates said. With big public investment in science and innovation, the government must complement this with a renewed focus on digital skills, working in conjunction with the private sector, to support skilled talent who will fulfil these new employment opportunities.
The Budget has set out the government’s tax and spending plans for the year ahead, with measures to help businesses and save jobs during the pandemic while supporting the UK’s long-term economic recovery.