Does Budget 2021 go far enough to save UK Businesses?
The twin forces of Brexit and the coronavirus pandemic have wreaked havoc on business confidence in the UK. It therefore comes as little surprise that almost two thirds (64%) reported the combination of the two made 2020 the hardest year they have faced, according to a recent survey of commissioned by One World Express.
Even as the UK entered 2021 on a more optimistic note - the Government were able to secure a last-minute Brexit deal - UK businesses continued to face challenges. Confusion over new customs regulations and administrative processes contributed to a 41% decline in UK exports to the EU.
Likewise, even with a roadmap out of lockdown, businesses - particularly nonessential shops, and those within hospitality and leisure sectors - still face a long wait until they are able to reopen. So, when Chancellor Rishi Sunak announced his broad plans for recovery in the Budget 2021 on 3rd March, anticipation centred on both the short-term support and the first plans for the UK’s future.
Businesses were not left disappointed. Mr Sunak matched his rhetoric with a tranche of measures which entrepreneurs and SME leaders will welcome; from extending vital emergency schemes, to proposing long-standing tax reforms.
The question remains whether these emergency measures will go far enough to facilitate the long-term recovery of UK businesses, as well as the wider economy.
At the time of the Budget 2021, the future remained uncertain for many businesses. As such, there were widespread calls to extend emergency business support schemes.
These calls were answered; the Chancellor announced that the furlough scheme would be extended until the end of September 2021. What’s more, the hospitality industry’s reduced VAT rates was also extended, which when coupled with the small business VAT Holiday until 2022, will allow SMEs much-needed flexibility.
Further, 600,000 more self-employed workers have been made additionally eligible for the Self Employed Income Support Scheme (SEISS), answering a major criticism that the original scheme excluded a large proportion of the entrepreneurial community.
These support policies are undoubtedly necessary to keep the economy afloat for the final stretch of lockdown. They are rightly targeted towards areas of most significant need and should go some way to restore confidence in the UK’s post-COVID recovery.
That said, while the Chancellor anticipates the UK economy as a whole will return to its pre-COVID capacity by the middle of next year, most businesses will not bounce back in the short- to medium term. So, it was crucial that the Government not only provided emergency remedy for immediate crises but also set out a long-term roadmap of its own vision for UK business.
Positively, Mr Sunak has considered the need for reforms to ensure than small businesses have the support they need to facilitate their long-term recovery. Infrastructural investment plans, including the Help to Grow Digital training scheme, along with substantial subsidies for tech upgrades strike a fine balance between businesses simultaneously needing to streamline costs and invest boldly, lending sustainability and confidence where it is needed most.
Additionally, the proposition of longer-term tax reforms is likely to be welcomed by many small businesses. The introduction of a 'small tax rate', which will see the tax rate for companies with profits of £50,000 or less remain at 19%. Meanwhile, companies taking profits of £250,000 or more will see their tax rate increase from 19% to 25% as of April 2023.
One reservation here is the plan to tax firms earning just above the £250k top rate threshold the same as vastly more profitable multi-national companies, which puts a hard ceiling on the incentives for SMEs to take high-yield risks or invest in future growth. That said, the move will certainly be welcomed by smaller businesses and startups, which will have been bruised by COVID-19.
Small businesses hoping for clearer picture of the road ahead will be reassured by the detail in the ‘tax day’ announcements on 23rd March. A careful balancing act is needed between the need for urgent stimulus for struggling small enterprise, and sustainable long-term planning for the post-Brexit and post-COVID recovery. Mr Sunak’s announcement of a call to evidence for a business tax system review highlights that the government recognises that the current system is no longer fit for purpose.
As such, care should be taken to ensure the tax system is suitable for organisations of all sizes to allow viable big picture planning, while reducing the fiscal burden on SMEs would be a step in the right direction for both the UK economy and small businesses which should form the 'backbone' of the post-COVID recovery.
The early indications are that this is a very encouraging Budget for small business, who will welcome the support, and hopefully take this opportunity to streamline, invest in infrastructure, and take the lead on the UK’s recovery path.